A definitive guide to the growing field of behavioral finance This reliable resource provides a comprehensive view of behavioral finance and its psychological foundations, as well as its applications to finance.

Acknowledgments ix Part I Foundation and Key Concepts 1 1 Behavioral Finance: An Overview 3 H. Kent Baker, John R. Nofsinger 2 Traditional versus Behavioral Finance 23 Robert Bloomfield 3 Behavioral Finance: Application and Pedagogy in Business Education and Training 39 Rassoul Yazdipour, James A. Howard 4 Heuristics or Rules of Thumb 57 Hugh Schwartz 5 Neuroeconomics and Neurofinance 73 Richard L. Peterson 6 Emotional Finance: The Role of the Unconscious in Financial Decisions 95 Richard J. Taffler, David A. Tuckett 7 Experimental Finance 113 Robert Bloomfield, Alyssa Anderson 8 The Psychology of Risk 131 Victor Ricciardi 9 Psychological Influences on Financial Regulation and Policy 151 David Hirshleifer, Siew Hong Teoh Part II Psychological Concepts and Behavioral Biases 169 10 Disposition Effect 171 Markku Kaustia 11 Prospect Theory and Behavioral Finance 191 Morris Altman 12 Cumulative Prospect Theory: Tests Using the Stochastic Dominance Approach 211 Haim Levy 13 Overconfidence 241 Markus Glaser, Martin Weber 14 The Representativeness Heuristic 259 Richard J. Taffler 15 Familiarity Bias 277 Hisham Foad 16 Limited Attention 295 Sonya S. Lim, Siew Hong Teoh 17 Other Behavioral Biases 313 Michael Dowling, Brian Lucey Part III Behavioral Aspects of Asset Pricing 331 18 Market Inefficiency 333 Raghavendra Rau 19 Belief- and Preference-Based Models 351 Adam Szyszka Part IV Behavioral Corporate Finance 373 20 Enterprise Decision Making as Explained in Interview-Based Studies 375 Hugh Schwartz 21 Financing Decisions 393 Jasmin Gider, Dirk Hackbarth 22 Capital Budgeting and Other Investment Decisions 413 Simon Gervais 23 Dividend Policy Decisions 435 Itzhak Ben-David 24 Loyalty, Agency Conflicts, and Corporate Governance 453 Randall Morck 25 Initial Public Offerings 475 François Derrien 26 Mergers and Acquisitions 491 Ming Dong Part V Investor Behavior 511 27 Trust Behavior: The Essential Foundation of Financial Markets 513 Lynn A. Stout 28 Individual Investor Trading 523 Ning Zhu 29 Individual Investor Portfolios 539 Valery Polkovnichenko 30 Cognitive Abilities and Financial Decisions 559 George M. Korniotis, Alok Kumar 31 Pension Participant Behavior 577 Julie Richardson Agnew 32 Institutional Investors 595 Tarun Ramadorai 33 Derivative Markets 613 Peter Locke Part VI Social Influences 629 34 The Role of Culture in Finance 631 Rohan Williamson 35 Social Interactions and Investing 647 Mark S. Seasholes 36 Mood 671 Tyler Shumway Part VII Answers to Chapter Discussion Questions 681 Index 727

BEHAVIORAL FINANCE The Robert W. Kolb Series in Finance is an unparalleled source of information dedicated to the most important issues in modern finance. Each book focuses on a specific topic in the field of finance and contains contributed chapters from both respected academics and experienced financial professionals. As part of the Robert W. Kolb Series in Finance, Behavioral Finance aims to provide a comprehensive understanding of the key themes associated with this growing field and how they can be applied to investments, corporations, markets, regulations, and education. Behavioral finance has the potential to explain not only how people make financial decisions and how markets function, but also how to improve them. This book provides invaluable insights into behavioral finance, its psychological foundations, and its applications to finance. Comprising contributed chapters by a distinguished group of academics and practitioners, Behavioral Finance provides a synthesis of the most essential elements of this discipline. It puts behavioral finance in perspective by detailing the current state of research in this area and offers practical guidance on applying the information found here to real-world situations. Behavioral finance has increasingly become part of mainstream finance. If you intend on gaining a better understanding of this discipline, look no further than this book.