Behavioral Finance: Psychology, Decision-Making, and Markets

425 Pages·2010·2.56 MB·English

by  Lucy Ackert

B F
EHAVIORAL INANCE
Psychology, Decision-Making, and Markets
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B F
EHAVIORAL INANCE
Psychology, Decision-Making, and Markets
Lucy F. Ackert
Michael J. Coles College of Business
Kennesaw State University
Richard Deaves
DeGroote School of Business
McMaster University
Australia • Brazil • Japan • Korea • Mexico • Singapore • Spain • United Kingdom • United States
BehavioralFinance:Psychology, ©2010South-Western,CengageLearning
Decision-MakingandMarkets
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To Bryan, Moira, William, and Rory
—Lucy Ackert
To Karen and André
—Richard Deaves
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B C
RIEF ONTENTS
PREFACE xx
ABOUT THE AUTHORS xxiv
INTRODUCTION xxvi
PART I CONVENTIONAL FINANCE, PROSPECT THEORY, AND MARKET EFFICIENCY 1
CHAPTER 1 Foundations of Finance I: Expected Utility Theory 3
CHAPTER 2 Foundations of Finance II: Asset Pricing, Market Efficiency,
and Agency Relationships 19
CHAPTER 3 Prospect Theory, Framing, and Mental Accounting 37
CHAPTER 4 Challenges to Market Efficiency 60
PART II BEHAVIORAL SCIENCE FOUNDATIONS 81
CHAPTER 5 Heuristics and Biases 83
CHAPTER 6 Overconfidence 106
CHAPTER 7 Emotional Foundations 120
PART III INVESTOR BEHAVIOR 135
CHAPTER 8 Implications of Heuristics and Biases for Financial Decision-Making 137
vii
viii BRIEF CONTENTS
CHAPTER 9 Implications of Overconfidence for Financial Decision-Making 151
CHAPTER 10 Individual Investors and the Force of Emotion 168
PART IV SOCIAL FORCES 183
CHAPTER 11 Social Forces: Selfishness or Altruism? 185
CHAPTER 12 Social Forces at Work: The Collapse of an American Corporation 202
PART V MARKET OUTCOMES 217
CHAPTER 13 Behavioral Explanations for Anomalies 219
CHAPTER 14 Do Behavioral Factors Explain Stock Market Puzzles? 237
PART VI CORPORATE FINANCE 263
CHAPTER 15 Rational Managers and Irrational Investors 265
CHAPTER 16 Behavioral Corporate Finance and Managerial Decision-Making 279
PART VII RETIREMENT, PENSIONS, EDUCATION, DEBIASING, AND CLIENT
MANAGEMENT 293
CHAPTER 17 Understanding Retirement Saving Behavior and Improving DC Pensions 295
CHAPTER 18 Debiasing, Education, and Client Management 319
PART VIII MONEY MANAGEMENT 333
CHAPTER 19 Behavioral Investing 335
CHAPTER 20 Neurofinance and the Trader’s Brain 351
GLOSSARY 359
REFERENCES 367
INDEX 383
C
ONTENTS
PREFACE xx
ABOUT THE AUTHORS xxiv
INTRODUCTION xxvi
C F , P T , M
ONVENTIONAL INANCE ROSPECT HEORY AND ARKET
PART I
EFFICIENCY 1
CHAPTER 1 Foundations of Finance I: Expected Utility Theory 3
Introduction 3
Neoclassical Economics 4
Rational Preferences 4
Utility Maximization 4
Relevant Information 6
Expected Utility Theory 6
Risk Attitude 8
Allais Paradox 11
Framing 14
Looking Forward 14
Chapter Highlights 14
Discussion Questions and Problems 15
ix