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Emotionally Involved Investors — Is There Any Finance Theory Fitting to Ethical, Crowdfunding and Fan Bond Investors?

In: Modern Finance and Risk Management Festschrift in Honour of Hermann Locarek-Junge

Author

Listed:
  • Ralf Trost
  • Alexander Fox

Abstract

It is quite obvious that emotions influence human decision-making. Conventional finance theory as well as conventional decision theory assume strictly rational behaviour. Behavioural finance, on the contrary, assumes bounded rationality causing humans to make mistakes. In this chapter we argue that both perspectives do not adequately cover decisions influenced by emotions and depict three very different kinds of emotional involvement in making investment decisions, one of them illustrated by empirical data. At the end, it shows it is fruitless to try to incorporate such phenomena in formal theories as well as declaim this impossibility once more and complain about normative theories not being descriptive.

Suggested Citation

  • Ralf Trost & Alexander Fox, 2022. "Emotionally Involved Investors — Is There Any Finance Theory Fitting to Ethical, Crowdfunding and Fan Bond Investors?," World Scientific Book Chapters, in: Tony Klein & Sven Loßagk & Mario Straßberger & Thomas Walther (ed.), Modern Finance and Risk Management Festschrift in Honour of Hermann Locarek-Junge, chapter 3, pages 27-53, World Scientific Publishing Co. Pte. Ltd..
    • Handle: RePEc:wsi:wschap:9781800611917_0003
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