The Situationist

Posts Tagged ‘Behavioral Finance’

A Neuroscience Perspective on the Financial Crises

Posted by The Situationist Staff on October 28, 2011

Andrew Lo recently posted his paper “Fear, Greed, and Financial Crises: A Cognitive Neurosciences Perspective” on SSRN.  Here’s the abstract.

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Historical accounts of financial crises suggest that fear and greed are the common denominators of these disruptive events: periods of unchecked greed eventually lead to excessive leverage and unsustainable asset-price levels, and the inevitable collapse results in unbridled fear, which must subside before any recovery is possible. The cognitive neurosciences may provide some new insights into this boom/bust pattern through a deeper understanding of the dynamics of emotion and human behavior. In this chapter, I describe some recent research from the neurosciences literature on fear and reward learning, mirror neurons, theory of mind, and the link between emotion and rational behavior. By exploring the neuroscientific basis of cognition and behavior, we may be able to identify more fundamental drivers of financial crises, and improve our models and methods for dealing with them.

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Download the paper for free here.

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Posted in Abstracts, Behavioral Economics, Emotions, Neuroscience | Tagged: , , | Leave a Comment »

The Evolutionary Situation of Behavior

Posted by The Situationist Staff on January 28, 2010

Thomas Brennan and Andrew Lo recently published their interesting paper, titled “The Origin of Behavior,” on SSRN.  Here’s the abstract.

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We propose a single evolutionary explanation for the origin of several behaviors that have been observed in organisms ranging from ants to human subjects, including risk-sensitive foraging, risk aversion, loss aversion, probability matching, randomization, and diversification. Given an initial population of individuals, each assigned a purely arbitrary behavior with respect to a binary choice problem, and assuming that offspring behave identically to their parents, only those behaviors linked to reproductive success will survive, and less reproductively successful behaviors will disappear at exponential rates. This framework generates a surprisingly rich set of behaviors, and the simplicity and generality of our model suggest that these behaviors are primitive and universal.

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You can download the paper for free, here.

Posted in Abstracts, Behavioral Economics | Tagged: , , , , , | Leave a Comment »

 
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