Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing

by Hersh Shefrin

Even the best Wall Street investors make mistakes. No matter how savvy or experienced, all financial practitioners eventually let bias, overconfidence, and emotion cloud their judgment and misguide their actions. Yet most financial decision-making models fail to factor in these fundamentals of human nature. In Beyond Greed and Fear , the most authoritative guide to what really influences the decision-making process, Hersh Shefrin uses the latest psychological research to help us understand the human behavior that guides stock selection, financial services, and corporate financial strategy. Shefrin argues that financial practitioners must acknowledge and understand behavioral finance--the application of psychology to financial behavior--in order to avoid many of the investment pitfalls caused by human error. Through colorful, often humorous real-world examples, Shefrin points out the common but costly mistakes that money managers, security analysts, financial planners, investment
bankers, and corporate leaders make, so that readers gain valuable insights into their own financial decisions and those of their employees, asset managers, and advisors. According to Shefrin, the financial community ignores the psychology of investing at its own peril. Beyond Greed and Fear illuminates behavioral finance for today's investor. It will help practitioners to recognize--and avoid--bias and errors in their decisions, and to modify and improve their overall investment strategies.

Genres: Finance, Psychology, Economics, Business, Nonfiction, Money, Personal Finance

368 pages, Paperback

First published September 15, 1999

Reviews

[van1998 · Rating 3 out of 5]

เกมเดาตัวเลขที่ใกล้เคียงที่สุด 2/3

[Robert Milles · Rating 5 out of 5]

Ein Buch für Praktiker geschrieben. Es wird ein recht umfassender Überblick über verschiedenste Denkfehler und Heuristiken gegeben, die zudem anhand von passenden Beispielen erläutert werden. Inhaltlich ist das Buch in jedem Fall empfehlenswert (auch wenn schon etwas in die Jahre gekommen). Man braucht jedoch Durchhaltevermögen, da der Text zeitweise sehr technisch geschrieben ist.

[Tress · Rating 3 out of 5]

A job-related read. Fairly technical, but good insight into how behavioral finance works. I took away some reasonably applicable concepts and examples, helping to inform my understanding of why the people I help do the things they do,

[Ayan Butt · Rating 3 out of 5]

teri main pan nu...........................................................................

[Kayla Slager · Rating 5 out of 5]

Incredibly informational of the heuristics behind people, especially pertaining to trading.

[James · Rating 5 out of 5]

An absolute must for any trader to read. Should be read many times to get out of the EMH indoctrination of college classes.

[Ajay Shyam · Rating 3 out of 5]

I have only recently started reading behavioral finance books to understand my own investment and trading psychological drivers and found this book to be educative. As it is research based on it required dense me to slow read it. The research is good insight into how we value market and risk but as most research is nearly 2 decade old so pre-google lead information glut age so would love to discover some more books on the subject that include the current period too.

Over all a good primer to understand why we behave in markets the way we do.

[Ishmamur Khan · Rating 5 out of 5]

An in depth look at how some of our most important financial institutions work.

[Blaze-Pascal · Rating 3 out of 5]

Some useful insights.

[db · Rating 4 out of 5]

One can pick up some tips in this book.

[Natalie Clarke · Rating 5 out of 5]

My favorite book ever

[K Huffman · Rating 4 out of 5]

The book is structured around the idea that “traditional financial theories” often overlook the human element, which can lead to irrational financial decisions driven by emotions rather than logic. Shefrin discusses concepts like overconfidence, biased decision-making, and the influence of groupthink in the investment world. He uses real-life examples and studies to illustrate how these psychological traits can lead investors astray.

“Our understanding of Behavorial Finance has expanded much beyond just Greed and Fear”. ~ Hersh Shefrin

Hersh Shefrin gives many interesting and thought-provoking examples that he has accumulated from many different financial journals. In this summary I can’t go into too much depth on particular examples without actually just rewriting entire chapters. So instead I’m going to breakdown the main topics that he covers in this book and then give a few of the shorter examples (highlighted in Pink below) as well as some helpful quotes directly from the book (highlighted in Blue).


Who Was This Book Written For?
According to Hersh Shefrin, this book was written by "practitioners", for practitioners. Practitioners covers a wide range of people:

portfolio managers
financial planners & advisers
investors
brokers
financial analysts
investment bankers
corporate executives
traders

Two important facts that psychologists have recently discovered:

- The primary emotions that determine risk taking behavior are not Greed & Fear, but are Hope & Fear.
- Although to err is human, financial practitioners of all types make the same mistakes, and they make them repeatedly.

The goal of this book is to:

- help recognize your own mistakes, as well as the mistakes of others
- understand the reasons behind these mistakes
- learn how to avoid these mistakes


The book covers 3 main themes of behavioral finance. These themes are introduced at the beginning of the book, each with their own chapter. Throughout the rest of the book, these topics are covered through all aspects of the markets and examples are given repeatedly throughout the book.

Here are the 3 main themes in Behavioral Finance:

Heuristic-driven bias
Frame dependence
Inefficient markets

Heuristic-Driven Bias
Heuristics are mental shortcuts or rules of thumb, usually learned through trial and error, that people use to quickly make decisions and judgments...

Check out the rest of my review and summary here: https://kriminiltrading.com/blogs/mus...

[Yuekun Liu · Rating 5 out of 5]

A fantastic overview of subjects on behavioural finance. It is kind of similar to the book 'Behavioural Finance: Psychology, Decision-making, and Markets', but with more cases. It states that psychology is everywhere under the finance topic.

As the author said, he organized the subject matter of behavioural finance into three broad themes: heuristic-driven bias, frame dependence, and inefficient market.

So far, in my understanding, this world does not exist behavioural finance. Finance did not change itself. The thing is that the so called behavioural finance is a descriptive one, and the traditional theory with rigours assumptions is a normative one. Well, they are both ”right”. And it depends on how people define the word “truth”. If reality is the truth, then clearly the finance with a psychology mask wins.

One thing interesting is that the statement that smart-money people do not try to exploit every mispricing opportunity that they see, in behavioural finance. Shefrin in his another book states one definition of market efficiency: prices are inefficient only if informed investors fail to engage in expected utility maximizing arbitrage.

I think I am still flowing on the surface of the knowledge. There are a lot of things waiting to be understood and explored.

Recommend this to any practical investors. And also recommend the book “A behavioural Approach asset pricing” by Hersh Shefrin.

[Kevin Pilot · Rating 4 out of 5]

An excellent overview of behavioral finance. Three mains components of most behavioral finance/economics/accounting ideas are explained well; heuristic biases, frame dependence and the inefficiency of markets (I think this could be expanded to describe inefficiencies in most most "free" exchanges of anything of value). The first half of the book goes over these key ingredients to understanding this subset of finance. The second half tries to apply these ideas to the investment industry, specifically investment advisors and make a less compelling case. Overall a great book if you are interested in this subject, a little technical at times, but overall a good read. Doesn't include much on applications of game theory, or prospect theory.

[Javier Villar · Rating 2 out of 5]

Academic perspective and jargon, which is nonsense from my point of view. Scholars spin around being right and that has nothing to do with making money. To surrender or not to surrender, that is the question.

[Ghifi · Rating 4 out of 5]

this is very good and entertaining book about investment

[Zach Zhao · Rating 3 out of 5]

A fascinating book that connects my interest in psychology with my passion in finance.

[Giorgos · Rating 4 out of 5]

Excellent book on Behavioral Finance. Needs some background on Finance theory

[Natalie Mok]

Behavioral finance

[Amit Trivedi · Rating 3 out of 5]

A very good book for a serious student of behavioral finance. The book links many theoretical concepts with the research conducted in the field by taking real life data and examples. Very insightful

[Jilany]

to-read wishntref

[Rohit Azad · Rating 5 out of 5]

Rubbishes most of finance theories.