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Behavioralizing Finance


  • Shefrin, Hersh


Finance is in the midst of a paradigm shift, from a neoclassical based framework to a psychologically based framework. Behavioral finance is the application of psychology to financial decision making and financial markets. Behavioralizing finance is the process of replacing neoclassical assumptions with behavioral counterparts. This monograph surveys the literature in behavioral finance, and identifies both its strengths and weaknesses. In doing so, it identifies possible directions for behavioralizing the frameworks used to study beliefs, preferences, portfolio selection, asset pricing, corporate finance, and financial market regulation. The intent is to provide a structured approach to behavioral finance in respect to underlying psychological concepts, formal framework, testable hypotheses, and empirical findings. A key theme of this monograph is that the future of finance will combine realistic assumptions from behavioral finance and rigorous analysis from neoclassical finance.

Suggested Citation

  • Shefrin, Hersh, 2010. "Behavioralizing Finance," Foundations and Trends(R) in Finance, now publishers, vol. 4(1–2), pages 1-184, March.
  • Handle: RePEc:now:fntfin:0500000030
    DOI: 10.1561/0500000030

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    Blog mentions

    As found by, the blog aggregator for Economics research:
    1. Making Finance Work For Households
      by Steve Cecchetti and Kim Schoenholtz in Money, Banking and Financial Markets on 2016-01-11 19:57:32


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    Cited by:

    1. Bekiros, Stelios & Jlassi, Mouna & Naoui, Kamel & Uddin, Gazi Salah, 2017. "The asymmetric relationship between returns and implied volatility: Evidence from global stock markets," Journal of Financial Stability, Elsevier, vol. 30(C), pages 156-174.
    2. Bekiros, Stelios & Jlassi, Mouna & Lucey, Brian & Naoui, Kamel & Uddin, Gazi Salah, 2017. "Herding behavior, market sentiment and volatility: Will the bubble resume?," The North American Journal of Economics and Finance, Elsevier, vol. 42(C), pages 107-131.


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