Behavioral Economics is the study of human nature as it relates to the economic decision-making processes of individuals and institutions.
Behavioral Finance has a narrower scope. My research work, for Investment Policy, examines the impact of different cognitive aspects on decision-making that effect the financial markets and focusing on drivers behind investment decisions, and financial markets.
“Behavioral Finance” started with Daniel Kahneman, but was expanded by Robert Shiller, who showed that stock prices fluctuate more irrationally than the standard theories suggest. The “anomaly” Shiller found was profound and it has real-world implications. His CAPE ratio can be used to predict the long-term movements of the stock market to a real degree.
My current work in “behavioral finance” research for Financial Freedom for individuals deals with investor behavior that is useful to financial institutions that have to deal with customers, and to stock investors themselves. My data, often empirical, tests hypotheses that are motivated by psychology as an explicit non-rational model of human behavior.
“Once contravention in old thinking is terminated, exercised discretion inspires self-realization.” KjP
