Behavioral Finance Symposium Summary Paper

Abstract

In September of 2017, the University of Michigan’s Center on Finance, Law and Policy and behavioral science research and design lab ideas42 hosted a two-day symposium on behavioral finance. Behavioral finance is the study of how behavioral biases and tendencies affect financial decisions, and in turn how those impact financial markets. A number of leaders from academia, government, nonprofits and the financial sector discussed behaviorally influenced research and innovations in financial products and services, and the impact of those innovations on the entire financial system. Through keynote presentations, panel discussions, Q&A, and interactive audience experiments, participants also discussed how policy designers could incorporate the principles of behavioral finance into their decision-making.

This summary paper is divided into two parts. Part I defines behavioral finance, explores how behaviorally minded economists and others seek to depart from assumptions that have traditionally played an important role in modeling human behavior, and discusses the underlying policy debate surrounding the use of “nudges.” Part II builds upon this understanding by analyzing: consumers’ and small businesses’ financial well-being; the innovative “nudges” and experiments undertaken by symposium speakers and the organizations they represent; the limits, unintended consequences, and externalities that have arisen from innovation in behavioral finance; and the ways in which these small nudges have ripple effects throughout the entire financial system, affecting macroeconomic financial stability.

Keywords: Behavioral finance, Behavioral economics, Narrative economics, Public policy, Interdisciplinary research, Audience experiments, Psychological bias, Finance, Small business innovation, Fintech, Macroeconomics

JEL Classification: E, K