A Survey of Behavioral Finance

78 Pages Posted: 19 Sep 2002 Last revised: 13 Sep 2021

See all articles by Nicholas Barberis

Nicholas Barberis

National Bureau of Economic Research (NBER); Yale School of Management

Richard H. Thaler

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

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Date Written: September 2002

Abstract

Behavioral finance argues that some financial phenomena can plausibly be understood using models in which some agents are not fully rational. The field has two building blocks: limits to arbitrage, which argues that it can be difficult for rational traders to undo the dislocations caused by less rational traders; and psychology, which catalogues the kinds of deviations from full rationality we might expect to see. We discuss these two topics, and then present a number of behavioral finance applications: to the aggregate stock market, to the cross-section of average returns, to individual trading behavior, and to corporate finance. We close by assessing progress in the field and speculating about its future course.

Suggested Citation

Barberis, Nicholas and Barberis, Nicholas and Thaler, Richard H., A Survey of Behavioral Finance (September 2002). NBER Working Paper No. w9222, Available at SSRN: https://ssrn.com/abstract=332266

Nicholas Barberis (Contact Author)

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Richard H. Thaler

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