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...

Financial literacy is a form of human capital that includes knowledge and skills related to personal finances including mathematical ability, knowledge of financial instruments and financial theory, and the ability to apply knowledge effectively. This chapter reviews how financial literacy has...

The chapter describes investment and trading strategies rooted in behavioral finance that historically have generated superior profits. The failure of traditional finance models, such as those based on purely rational behavior, to explain how markets work has enabled behavioral finance to move...

An important challenge facing employees and societies is saving and investing sufficient funds for a comfortable retirement. Research shows that human financial decision-making behavior is not always rational and that public trust in the economy can be lost. Surprisingly, neither better...

Financial counseling is generally conceptualized as a short-term process concerned with helping people change their financial behavior through applied education and guidance. Counseling typically involves helping people clarify issues, explore options, assess alternatives, make decisions,...

The real estate market displays many of the behavioral biases documented in the traditional financial markets. During bull markets, investor overconfidence, optimism, representativeness, and self-attribution bias among others drive prices far above their fundamental values. Conversely, during...