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The traditional economics approach to decision-making assumes fully rational, non-psychological, unemotional, all-calculating, fully optimizing maximizers of self-interested expected utility (i.e., the homo economicus approach). In contrast, behavioral economics recognizes that real-world human ...

The traditional economics approach to decision-making assumes fully rational, non-psychological, unemotional, all-calculating, fully optimizing maximizers of self-interested expected utility (i.e., the homo economicus approach). In contrast, behavioral economics recognizes that real-world human decision-making may be subject to shortcuts or “heuristics,” as well as cognitive biases and emotions. Further, humans are not always completely self-interested; we have empathy and social preferences (e.g., caring for others’ welfare). These shortcuts, biases, and emotions may be viewed as a product of evolutionary pressures designed to help us make boundedly optimal/satisficing decisions in a dynamic and complex world. Behavioral finance applies the behavioral economics approach to financial decision-making by investors in the financial markets and corporate managers in firms. In short, behavioral economics/finance incorporates psychology into traditional economics and finance.

Research in behavioral economics/finance has been conducted through theoretical development, empirical analysis, and behavioral- and neuro-experimental approaches. Emotional finance provides a recent break-through development, incorporating Freudian psychoanalysis into the behavioral finance framework. The present Research Topic provides an opportunity for researchers in the areas of psychology, behavioral economics, behavioral/emotional finance and related areas to elucidate how financial decision-making is influenced by emotional and cognitive biases. The purpose of this Research Topic is to provide a contemporary resource for academics and practitioners who wish to apply an understanding of human decision-making shortcuts and/or biases to reduce their impact on financial decision-making.

The scope of this field is broad, and this is similarly reflected within this Research Topic. Original articles, brief research reports, systematic reviews, reviews, mini reviews, conceptual analyses and perspectives are welcome. Manuscripts may focus on any area related to financial decision-making. Areas of interest include, but are not limited to, the following areas:

• Optimisation of financial decision-making based upon models of limited resources (e.g. when to capitalise on “fast” vs. “slow” thinking);
• The effect of emotions and psychological biases on investors’ and managers’ financial decision-making and performance in the financial markets and firms;
• Interpretation of risk when making financial decisions;
• Age-related changes in financial decision-making;
• Intertemporal discounting (e.g. the decision to spend more in the short-term vs. saving for pensions);
• Neural substrates of financial decision-making and, critically, how this influences a practical understanding of financial decision-making;
• Expert vs. novice decision-makers in finance environments;
• Behavioral and neuro-economics approaches to understanding of financial decision-making;
• Use of nudges in financial decision-making;
• Non self-interested behavior (i.e. social preferences) in financial decision-making (e.g., social investing with low economic returns but high social impact).

Keywords: finance, decision making, emotion, bias, heuristics, affect, money, risk


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