Nonrational Actors and Financial Market Behavior

28 Pages Posted: 19 Jun 2004 Last revised: 13 Sep 2010

See all articles by Richard J. Zeckhauser

Richard J. Zeckhauser

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Jayendu Patel

Harvard University

Darryll Hendricks

Harvard University - Harvard Kennedy School (HKS); National Bureau of Economic Research (NBER)

Date Written: June 1991

Abstract

The insights of descriptive decision theorists and psychologists, we believe, have much to contribute to our understanding of financial market macrophenomena. We propose an analytic agenda that distinguishes those individual idiosyncrasies that prove consequential at the macro-level from those that are neutralized by market processes such as poaching. We discuss five behavioral traits - barn-door closing, expert/reliance effects, status quo bias, framing, and herding - that we employ in explaining financial flows. Patterns in flows to mutual funds, to new equities, across national boundaries, as well as movements in debt-equity ratios are shown to be consistent with deviations from rationality.

Suggested Citation

Zeckhauser, Richard J. and Patel, Jayendu S. and Hendricks, Darryll, Nonrational Actors and Financial Market Behavior (June 1991). NBER Working Paper No. w3731. Available at SSRN: https://ssrn.com/abstract=226924

Richard J. Zeckhauser (Contact Author)

Harvard University - Harvard Kennedy School (HKS) ( email )

79 John F. Kennedy Street
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-384-9340 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States
617-495-1174 (Phone)
617-496-3783 (Fax)

Jayendu S. Patel

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

Darryll Hendricks

Harvard University - Harvard Kennedy School (HKS)

79 John F. Kennedy Street
Cambridge, MA 02138
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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