Erasmus University: New insights into behavioral finance

New insights into behavioral financeBy applying insights form psychology and other behavioral sciences, behavioral finance helps to overcome the shortcomings of the traditional finance approach, which assumes that agents and markets are rational. In his thesis New insights into behavioral finance, Guido Baltussen investigates preferences of investors, their investment decisions, and the behavior of financial markets. He defends his thesis on Thursday 4 December 2008 at Erasmus University Rotterdam.

Baltussen shows that people dislike downside risk and employ decision-making patterns that may result in risk-taking behavior of which they are not aware, or in which they normally would not engage, and that can result in non-optimal behavior. More specific, people change their behavior in response to previous outcomes, preferences are highly sensitive to the context of outcomes, and people tend to use simplifying heuristics to construct their investment portfolios. Furthermore, this thesis shows that incorporating behavioral-based preference patterns has substantial influence on investor's optimal behavior in financial markets.

Guido Baltussen's work has been presented at the top international conferences in financial economics and psychology, and is published in leading scientific journals like the American Economic Review and Management Science. He carried out his research in The Tinbergen Institute, a graduate school and research institute in economics, accredited by the Royal Netherlands Academy of Sciences (KNAW). The Tinbergen Institute was founded by the economics departments of the Erasmus University Rotterdam (EUR), the University of Amsterdam (UvA), and the Vrije Universiteit Amsterdam (VU) in 1987. Currently, some 100 research fellows and 120 graduate students participate in the Tinbergen Institute.

 

 

 

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