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Applying Neuroscience to Financial Planning Practice: A Framework and Review

53 Pages Posted: 7 Dec 2011  

Russell N. James III

Texas Tech University

Date Written: December 6, 2011

Abstract

This paper presents findings from neuroscience, neuro-finance, neuro-economics, behavioral finance, and behavioral economics in the context of a two-system model of human decision-making, labeled as the “rider” and the “elephant”. The rational “rider” system is characterized by overconfidence and deficiencies in speed and endurance. The emotional “elephant” system is characterized by time preference myopia, emotional marker processing, and loss aversion. Application of this neural model of financial decision-making results in a variety of effective and practical suggestions for financial planners.

Keywords: neuroeconomics, decision-making, neurofinance, fmri, brain science, financial planning

JEL Classification: D11, D00, C91, C92

Suggested Citation

James, Russell N., Applying Neuroscience to Financial Planning Practice: A Framework and Review (December 6, 2011). Available at SSRN: https://ssrn.com/abstract=1968995 or http://dx.doi.org/10.2139/ssrn.1968995

Russell N. James III (Contact Author)

Texas Tech University ( email )

2500 Broadway
Lubbock, TX 79409
United States

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