Taming the Animal Spirits of the Stock Markets: A Behavioral Approach to Securities Regulation

Abstract

Recent advances in behavioral finance and economics have offered fascinating, albeit tentative, suggestions that may be useful to securities law policy-makers, especially in the aftermath of Enron and similar scandals. Because of the tentative nature of the findings, however, strong incorporation seems premature. After reviewing some of the literature, I look at three different problem areas - internet fraud, selective disclosure and the measurement of damages in class actions - where this literature might at least provoke creative ideas on how to respond, even if it doesn't generate a clear-cut solution.