What is behavioral finance and why does it matter?

Behavioral Finance is a field of behavioral economics that tries to understand limits of human rationality and how this leads to what SOME consider irrational behavior. We look further at how decisions are actually made (including neuroscience) and investigate how this knowledge can help us in our financial as well as life decisions.

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    What is the point?

    Why study behavioral finance/Economics?  Here is a list that I made for my class a couple of years ago.  It still works:

    1. To understand the differences between classic financial theory (people behave as Homo Economicus from Nudge) and behavioral models that account for the fact that people do not always behave as classic economists would predict.
    2. To Identify biases that impact our actions in the financial arena.
    3. To determine where these biases come from (this will include some looks at psychology and neuroscience)
    4. To demonstrate how irrational behavior impacts investment returns, personal finance decisions, corporate financial decisions, and the economy as a whole.
    5. To describe methods we can use to protect ourselves and others from these biases



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    Traditional vs Behavioral finance (An introduction)

    This serves as an introduction to my classes when we do behavioral finance.

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    We're All Predictably Irrational - Dan Ariely

    This is excellent. You may have seen it before, but it is worth rewatching. I use it in many of my classes and it never ceases to impress me. Dan is great. "Dan Ariely, a professor of behavioral economics at Duke University, presents examples of cognitive illusions that help illustrate why humans make predictably irrational decisions. "

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    Paul Craven - Behavioural Finance - From Biases to Bubbles - Nudgestock 24 May 2013

    LOVE IT! Paul Craven does a seriously a great job. WATCH IT! Entertaining and informative. Will pique your interest in the field. My new favorite! Paul Craven - Behavioural Finance - From Biases to Bubbles - Nudgestock 24 May 2013

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    The Psychology of Human Misjudgement - Charlie Munger Full Speech

    BuffettMungerWisdom: http://buffettmungerwisdom.wordpress.com "Influence: The Psychology of Persuasion by Rober Cialdini" http://amzn.to/WgcAuo "Poor Charlie's Almanack Expanded Third Edition" http://amzn.to/13szxgn Audio of the often referred to speech by Charlie Munger on the psychology of human misjudgement given to an audience at Harvard University circa Jun 1995.

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