Behavioral Finance

We are taught not to throw good money after bad or to cry over spilt milk. Yet we do both, otherwise we would not be taught not to. People often make choices based on what has been lost rather than what can be gained. Such choices are particularly costly in the world of finance.

Behavioral Finance: What Everyone Needs to Know® 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?

H. Kent Baker is a University Professor of Finance in the Kogod School of Business at American University.

Greg Filbeck is the 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.

John R. Nofsinger is William H. Seward Chair in International Finance at the University of Alaska Anchorage.