This week on our Masters in Business radio podcast, we sit down with Meir Statman, Santa Clara University Professor of Finance, and author of What Investors Really Want: Know What Drives Investor Behavior and his latest book, Finance for Normal People: How Investors and Markets Behave.
What he does so well is to contextualize the development of behavioral economics as it has slowly been applied to finance.
Statman describes the wild over-reaction to his earliest “heretical” paper on Behavior and Finance — people threatened to boycott the journal of finance he presented at and cancel subscriptions. Since then, the field has become much more accepted; his research and papers on behavioral economics have won numerous awards.
His book What Investors Really Want is a look at how the various roadblocks to intelligent financial decision-making. He explains the way people look for expressive and emotional benefits beyond the mere utilitarian (profit maximization in their investments — proof of intelligence, evidence of success, ego-gratification — none of which has anything to do with their portfolios returns. His latest book Finance for Normal People, he looks at what Behavioral Economics calls irrational, and instead describes this as “normal.” That leaping off point — bad decision-making as normal — leads to a way of thinking about investing that is quite different than most other investment psychology.
He also describes what it was like having the great financial historian, economist and educator Peter L. Bernstein as his mentor.
All of the books Statman discusses can be found here.
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Next week, we speak with Michael Zezas, Morgan Stanley’s Chief Municipal Bond Strategist.