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behavioural finance

Robert Bloomfield
From The New Palgrave Dictionary of Economics, Second Edition, 2008
Edited by Steven N. Durlauf and Lawrence E. Blume
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Abstract

Behavioural finance began as an attempt to understand why financial markets react inefficiently to public information. One stream of behavioural finance examines how psychological forces induce traders and managers to make suboptimal decisions, and how these decisions affect market behaviour. Another stream examines how economic forces might keep rational traders from exploiting apparent opportunities for profit. Behavioural finance remains controversial, but will become more widely accepted if it can predict deviations from traditional financial models without relying on too many ad hoc assumptions, and expand to settings (particularly corporate finance) in which arbitrage forces are weaker.
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How to cite this article

Bloomfield, Robert. "behavioural finance." The New Palgrave Dictionary of Economics. Second Edition. Eds. Steven N. Durlauf and Lawrence E. Blume. Palgrave Macmillan, 2008. The New Palgrave Dictionary of Economics Online. Palgrave Macmillan. 22 August 2014 <http://www.dictionaryofeconomics.com/article?id=pde2008_B000339> doi:10.1057/9780230226203.0116

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