A new cottage industry has emerged in the financial world called “behavioral finance theory” (BFT). The foundation of BFT is that people often make decisions that rational economic theory fails to predict. In other words, there is something about human nature that drives us to make different choices around money and finances that a formula or financial plan might otherwise suggest we do.
Laurie Santos*, Director of Yale University’s Comparative Cognition Laboratory and Associate Professor at Yale University, and her colleagues conducted very interesting research regarding this subject. It involved a series of experiments involving capuchin monkeys (a good proxy for human behavior) that explored a handful of key behaviors as they related to behavioral finance theory. Read more