THE PSYCHOLOGY OF FINANCE: ONE DECADE, TWO NOBEL’S

Abstract

The study of behavioral finance combines the investigation and expertise from research and practice into smart portfolios of individual investors’ portfolios that can overcome cognitive errors and misleading emotions and drive investors to their long term goals of financial prosperity and capital preservation. If 10 years ago, Behavioral Finance was still considered and incipient science, the first Noble Prize in Economics awarded to the study of Behavioral Economics establish the field as a new, respected study of economics. 2013 Nobel Prize was awarded to three economists, one of them considered the one of the founders of the Behavioral Finance. As such, by now we are entering the coming of age of behavioral finance. It is now establish as a science of understanding investors behaviors and distill these patterns with quantitative finance to provide practical models grounded on robust understanding of investors as well as investments. The practical application of BiFi can help us discover how individual and group herd behaviors can lead to biased investment decisions, understand the resorts behind their decision making processes and develop practical tools to improve portfolio and risk management processes, so in the end to be better serve the client-owner of the funds managed an finally to help for the better good of society at large

Keywords

• Psychology
• biases
• efficiency
• individual investment