A Personality Theory of Sophisticated Investor Decision-Making (In the 2008 Financial Crisis), with Some Policy Implications

Revue internationale des services financiers/International Journal for Financial Services, Forthcoming

Minnesota Legal Studies Research Paper No. 17-02

8 Pages Posted: 24 Jan 2017 Last revised: 6 Feb 2017

See all articles by Claire A. Hill

Claire A. Hill

University of Minnesota Law School

Date Written: November 10, 2016

Abstract

This paper argues that a nuanced view of sophisticated investors, as well as sellers and structurers of financial instruments, articulated within a rationality paradigm, has implications for financial regulation. The paper distinguishes between conformist investors, who tend to herd, and confident investors, of which contrarians are a notable subgroup, who very much do not herd; sellers who are more aggressive, acting in accordance with strong form caveat emptor, sellers who are more empathetic, and those somewhere in the middle; and finally, focused structurers, who figure out how to achieve a particular objective, and holistic structurers, who also consider whether the objective (perhaps, an end-run around regulation) should be achieved. Regulation will work best if the different types of actors and their interactions are taken into account.

Keywords: financial regulation; behavioral law and economics

JEL Classification: G21, K22, L21

Suggested Citation

Hill, Claire Ariane, A Personality Theory of Sophisticated Investor Decision-Making (In the 2008 Financial Crisis), with Some Policy Implications (November 10, 2016). Revue internationale des services financiers/International Journal for Financial Services, Forthcoming; Minnesota Legal Studies Research Paper No. 17-02. Available at SSRN: https://ssrn.com/abstract=2902917

Claire Ariane Hill (Contact Author)

University of Minnesota Law School ( email )

229 19th Avenue South
Minneapolis, MN 55455
United States
612-624-6521 (Phone)

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