Behavioral Finance

People tend to be penny wise and pound foolish and cry over spilt milk, even though we are taught to do neither. Focusing on the present at the expense of the future and basing decisions on lost value are two mistakes common to decision-making that are particularly costly in the world of finance. Behavioral Finance: What Everyone Needs to KnowR provides an overview of common shortcuts and mistakes people make in managing theirfinances. It covers the common cognitive biases or errors that occur when people are collecting, processing, and interpreting information. These include emotional biases and the influence of social factors, fromculture to the behavior of one's peers. These effects vary during one's life, reflecting differences in due to age, experience, and gender. Among the questions to be addressed are: How did the financial crisis of 2007-2008 spur understanding human behavior? What are market anomalies and how do they relate to behavioral biases? What role does overconfidence play in financial decision- making? And how does getting older affect risk tolerance?

“"If you are looking for a book that explains behavioral finance in plain understandable language, then this book is for you. This book adeptly applies the classic Socratic method to explain why the behavioral approach better explains the behavior of normal people than the neoclassical approach." --Hersh Shefrin, Mario L. Belotti Professor of Finance, Santa Clara University "Behavioral Finance: What Everyone Needs to Know is both an introduction to and a comprehensive but compact overview of behavioral finance. To their considerable credit, the authors do not just define and describe the various behavioral biases the field has brought to light. Rather, they conclude their discussions of each particular bias with recommendations on how to guard against, mitigate, or compensate for it in order to get better results." -- Nick Ronalds, CFA Institute”

"If you are looking for a book that explains behavioral finance in plain understandable language, then this book is for you. This book adeptly applies the classic Socratic method to explain why the behavioral approach better explains the behavior of normal people than the neoclassical approach." --Hersh Shefrin, Mario L. Belotti Professor of Finance, Santa Clara University"Behavioral Finance is a compact and useful overview of this important, comparatively new sub-field of finance and an excellent resource for practitioners wanting to refresh or deepen their understanding." -- Enterprising Investor

H. Kent Baker is University Professor of Finance in the Kogod School of Business at American University. He has authored or edited 30 books and published more than 290 articles. His books Investor Behavior and Investment Traps Exposed received book excellence awards. Professor Baker is among the top 1% of the most prolific authors in finance.Greg Filbeck is Samuel P. Black III Professor of Finance and Risk Management and Director of the Black School of Business at Penn State Erie, The Behrend College. He has authored or edited 10 books and published more than 95 academic articles. Professor Filbeck has conducted training for professional designations for the last two decades.John R. Nofsinger is William H. Seward Chair in International Finance at the University of Alaska Anchorage. He has authored or edited 11 books that have translations in 11 languages and published 63 scholarly articles. He is author of the book, The Psychology of Investing 6th edition, which is popular with financial advisors.

People tend to be penny wise and pound foolish and cry over spilt milk, even though we are taught to do neither. Focusing on the present at the expense of the future and basing decisions on lost value are two mistakes common to decision-making that are particularly costly in the world of finance. Behavioral Finance: What Everyone Needs to KnowR provides an overview of common shortcuts and mistakes people make in managing their finances. It covers the common cognitive biases or errors that occur when people are collecting, processing, and interpreting information. These include emotional biases and the influence of social factors, from culture to the behavior of one's peers. These effects vary during one's life, reflecting differences in due to age, experience, and gender. Among the questions to be addressed are: How did the financial crisis of 2007-2008 spur understanding human behavior? What are market anomalies and how do they relate to behavioral biases? What role does overconfidence play in financial decision- making? And how does getting older affect risk tolerance?

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