Human behavior and the efficiency of the financial system (1999)
| Venue: | Handbook of Macroeconomics |
| Citations: | 41 - 2 self |
BibTeX
@INPROCEEDINGS{Shiller99humanbehavior,
author = {Robert J. Shiller},
title = {Human behavior and the efficiency of the financial system},
booktitle = {Handbook of Macroeconomics},
year = {1999},
publisher = {Elsevier}
}
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Abstract
Recent literature in empirical finance is surveyed in its relation to underlying behavioral principles, principles which come primarily from psychology, sociology and anthropology. The behavioral principles discussed are: prospect theory, regret and cognitive dissonance, anchoring, mental compartments, overconfidence, over- and underreaction, representativeness heuristic, the disjunction effect, gambling behavior and speculation, perceived irrelevance of history, magical thinking, quasi-magical thinking, attention anomalies, the availability heuristic, culture and social contagion, and global culture. Theories of human behavior from psychology, sociology, and anthropology have helped motivate much recent empirical research on the behavior of financial markets. In this paper I will survey both some of the most significant theories (for empirical finance) in these other social sciences and the empirical finance literature itself. Particular attention will be paid to the implications of these theories for the efficient markets hypothesis in finance. This is the hypothesis that financial prices efficiently incorporate all public
