A New Paradigm for Practical Application of Behavioral Finance - JWM
By MICHAEL M. POMPIAN AND JOHN M. LONGO
Offering cogent explanations of seemingly irrational investor and market behavior, behavioral finance has emerged as an important branch of economics in recent years. Indeed, the 2002 Nobel Memorial Prize in Economic Sciences was awarded to Vernon Smith and Daniel Kahneman, two seminal researchers in experimental economics and behavioral finance. Paralleling the groundbreaking work in academia, most practitioners agree that the interface between human emotions and financial decision-making contributed to both the stock market bubble of the mid to late 1990s and the recent bear market.