Financial decisions are among the most important life-shaping decisions that people make. We review facts about financial decisions and what cognitive and neural processes influence them. Because of cognitive constraints and a low average level of financial literacy, many household decisions violate sound financial principles. Households typically have underdiversified stock holdings and low retirement savings rates. Investors overextrapolate from past returns and trade too often. Even top corporate managers, who are typically highly educated, make decisions that are affected by overconfidence and personal history. Many of these behaviors can be explained by well-known principles from cognitive science. A boom in high-quality accumulated evidence-especially how practical, low-cost 'nudges' can improve financial decisions-is already giving clear guidance for balanced government regulation.
The Psychology and Neuroscience of Financial Decision Making.
Published 2016 in Trends in Cognitive Sciences
ABSTRACT
PUBLICATION RECORD
- Publication year
2016
- Venue
Trends in Cognitive Sciences
- Publication date
2016-09-01
- Fields of study
Medicine, Psychology
- Identifiers
- External record
- Source metadata
Semantic Scholar, PubMed
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