Examining the demographic and socioeconomic factors in investor behavior is important to understanding how investors choose their portfolios. The extant literature suggests that men invest more aggressively than women and white investors invest more aggressively than African American investors....

In contrast to the assumption of standard economic theories, human beings cannot always make rational investment and trading decisions. Thus, psychological explanations are needed to shed light on the complexity of actual decision-making processes. The purpose of this chapter is to provide an...

Standard or traditional finance research is based on the rational choice model that assumes market participants are fully rational, unbiased, emotionless, self-interested maximizers of expected utility. Recent research in behavioral finance recognizes that real-world investors and managers are...

This chapter attempts to answer the question, “What motivates people and can they be helped to achieve life satisfaction?” It transitions from classical economic theory to behavioral economics, which includes the behavioral life cycle hypothesis, and on to humanistic thoughts. Each theory...

Biology can have both constructive and damaging effects on investment decision-making. Both research and clinical evidence confirm that subtle shifts in neurochemistry affect financial decision-making. These alternations in brain functioning are driven by events as mundane as the weather and as...

The historic financial crisis in 2007 and 2008 seriously affected investors. In general, stock market values declined by about 50 percent but largely recovered from pre-crisis levels by the end of 2012 due in part to unprecedented stimulus efforts. Nonetheless, the cumulative return on stocks...

Trading psychology offers a unique look at unexpected factors in risk decisions made in uncertain circumstances. Traders, by definition, constantly make judgment calls and face a roller coaster of positive and negative feedback via the authority figure of price. Emanating from the historically...

This chapter introduces an emerging field of study and practice called financial therapy. Financial therapy has applications in furthering the knowledge base around money psychology and addressing maladaptive financial beliefs and decisions of individuals and families. In contrast to traditional...

Personality captures a person's essence. Understanding one's personality helps explain and predict the decisions an individual makes and what a person will do. This chapter focuses on the predominant structural model of personality — the Five-Factor Model — which encapsulates personality...

Within the area of finance, most basic theoretical models do not fully describe true household investment decision-making behavior. This is due in large part to the fact that most traditional finance models are based on the assumptions that financial markets operate without frictions and that...