Theory and Decision

, Volume 31, Issue 2, pp 257–287

Nonrational actors and financial market behavior

  • Richard Zeckhauser
  • Jayendu Patel
  • Darryll Hendricks
Article

DOI: 10.1007/BF00132995

Cite this article as:
Zeckhauser, R., Patel, J. & Hendricks, D. Theor Decis (1991) 31: 257. doi:10.1007/BF00132995

Abstract

The insights of descriptive decision theorists and psychologists, we believe, have much to contribute to our understanding of financial market macrophenomena. We propose an analytic agenda that distinguishes those individual idiosyncrasies that prove consequential at the macro-level from those that are neutralized by market processes such as poaching. We discuss five behavioral traits — barn-door closing, expert/reliance effects, status quo bias, framing, and herding — that we employ in explaining financial flows. Patterns in flows to mutual funds, to new equities, across national boundaries, as well as movements in debt-equity ratios are shown to be consistent with deviations from rationality.

Keywords

financial marketdecision theorybehavioral decisionfinancial flowsrationalityherd behavior

Copyright information

© Kluwer Academic Publishers 1991

Authors and Affiliations

  • Richard Zeckhauser
    • 1
  • Jayendu Patel
    • 1
  • Darryll Hendricks
    • 1
  1. 1.John F. Kennedy School of Government, Harvard UniversityHarvardUSA