The conduct of scientific research has produced in the last 30 years, numerous results, whereby we have to make choices instead of strictly rational motives also in the case of financial instead of our emotions or simplistic fist-end rules. Daniel Kahneman, one of the most well-known researchers in the field of Behavioral Finance, was awarded the Nobel prize for his insights on financial decisions under uncertainty. And it showed, with the aid of nuclear spin tomographs, in the case of financial decisions, often the cerebellum is the most active part of the brain – this is what connects us to the history of evolution, for example with the reptiles. Therefore, it is not surprising that our brain takes occasional abbreviations in order to be able to quickly take a decision.
The Behavioral Finance is based on the recognition that the market participants due to psychological, mental and neural limitations measured only to a limited rational behaviour in the expected utility theory are capable of. The concept of bounded rationality is a Central aspect and starting point of the Behavioral-Finance research. They refute the assumption that the bounded rational behaviour of single individuals due to the heterogeneity of the market participants are neutralized and, consequently, not in market result. speaks Rather, the proponents of Behavioral Finance can expect a paradigm extension, which extends the economic concepts and principles of the neoclassical capital market theory, psycho-logical, sociological and neurological aspects.
The Text comes from the UTB-book Behavioral Finance by Rolf J. Some and Máté Facsar. The Textbook suggests first of all, the arc of the neo-classical view of financial markets Behavioral Finance. Then, speculative bubbles, from the Tulip mania until the Subprime mortgage bubble has to be presented as evidence for bounded rationality in financial markets in detail. After that, the heuristics in investment decisions in the securities markets are in the foreground. The resulting distortions can be classified according to their risk/return harmfulness in the context of the RRS-Index®. Finally, examples for the application of the Behavioral Finance knowledge in Wealth Management, and Corporate Governance are discussed and it is thrown a look at the latest developments in the Neuro-Finance and Emotional Finance.