Financial Behavioralism: A Behavioral Finance Approach to Minimize Losses and Maximize Profits from Heuristics and Biases

In an impressive line of experiments and field studies, the growing field of behavioral finance has offered behavioral insights on how markets deviate from rationality. Human actors are prone to base their investment choices on very many other factors than simply volatility and profit maximization opportunities. Investors decisions tend to be biased by heuristics, which are covered in this chapter. The following part reviews some of the behavior insights gained in the last decades and shows ways how to profit from heuristics and biases. Most recently, nudging has started using the emerging insights about human heuristics and biases to improve decision-making in different domains ranging from health, wealth, and prosperity. This part of the book explains some behavioral finance techniques that can be used to enhance your financial gain by diversification, investing in crises-robust, long-term sustainable market options, demographics-based forecasting, saving money through tangibility and safe havens, or reaping benefits from outperforming market strategies. The role of inflation and a low interest rate in markets will be considered from a behavioral consumer perspective as well as from a disparate impact analysis view.