Behavioral Finance is Alive and Well

An article in last month’s MorningstarAdvisor¬† provides a “brief tour through the history of behavioral finance” and offers some insights as to what might lie ahead. “Behavioral finance as a distinct approach is very much alive and well, and it is being applied in a variety of contexts within the industry,” writes Morningstar’s Steve Wendel, who oversees a team of researchers dedicated to developing “behavioral tools to help investors in an increasingly complicated market.” Wendel cites some of the key players in this field of study as well as some major findings with respect to biases and other relevant factors. […]

Behavior Finance Pioneer on Efficient Markets, Bubbles

Richard Thaler, the researcher whose work has brought such key behavioral finance issues as myopic loss aversion to light, says recent events have shown markets are not efficient, but that they are still the best way to employ capital. “Counting the earlier bubble in Japanese real estate, we have now had three enormous price distortions in recent memory,” Thaler wrote in The Financial Times. “They led to misallocations of resources measured in the trillions and … the latest bubble, a global credit meltdown. If asset prices could be relied upon to always be ‘right’, then these bubbles would not occur. […]