THE END OF RATIONALITY? EMBRACING BEHAVIORAL INSIGHTS IN FINANCIAL THEORY

Abstract

Through a large state of the art on decision-making in trading, we find that the assumption of traders' rationality is difficult to sustain for individual investors. Even if this is not the mainstream of finance, a growing number of studies demonstrate the need to take emotions into account to understand the behavior of stock market investors. With this in mind, we emphasize the importance of a transdisciplinary approach to understanding stock markets, covering a broad spectrum of variables that influence decision-making process. Thus, the simultaneous use of measurement tools from psychology, sociology and neurophysiology would ensure access to high levels of scientific completeness. At the end of this article, we propose several qualitative tools designed to provide a closer look at the psychological contours of individuals and the emotional fields potentially involved in decision-making.