As firms switch from defined benefit plans to defined contribution plans, employees bear more responsibility for making decisions about how much to save. The employees who fail to join the plan, or who participate at a very low level, appear to be saving at less than the predicted lifecycle savings rates... [read more...]

Some of the best science outside of the “hard sciences” (where decisive experiments are much easier to set up) comes from recent behavioral psychology. Studies of biases in human reasoning have been affecting the field of behavioral finance which, in turn, is beginning to challenge traditional economic... [read more...]

Mental accounting is the set of cognitive operations used by individuals and households to organize, evaluate, and keep track of financial activities. Making use of research on this topic over the past decade, this paper summarizes the current state of our knowledge about how people engage in mental... [read more...]

Executives, like all human beings, make persistent makes in decision-making. Cognitive psychologists have uncovered a range of typical biases in human reasoning. This paper by Thaler and Benartzi is based on the work of Daniel Kahneman, 2002 Nobel Prize winner in Economics. Richard Thaler has written... [read more...]

To the extent that business strategy is informed by economics, it could be in trouble. Richard Thaler and Nicholas Barberis are among those who have revealed the inaccuracy and unreasonableness of the economists’ model of agent rationality. Behavioral finance looks at financial processes and events with... [read more...]

This 5-page paper makes for an excellent and concise introduction to behavioral finance’s important challenges to traditional economic assumptions. Behavioral finance argues that real-world economic behavior diverges significantly and lastingly from the economists’ model of rationality. Rational agents... [read more...]

If you are an executive who has studied economics, especially at an advanced level, you'd be among those highly skeptical of the practical value of the discipline. Certainly economists who bury themselves in econometric models divorced from reality, running them on assumptions of “perfect competition”... [read more...]