Knowledge is power, and the more you know about something, the better equipped you will be to make an informed decision. It also helps to have relevant, useful information at hand before venturing into any situation, especially if it’s unexplored territory.
The theory of behavioural finance (or behavioural economics) is “relatively” new, with cognitive psychologists Daniel Kahneman and Amos Tversky being two of the leading academics whose contributions to the field have been invaluable. Their pioneering research laid much of the groundwork for behavioural economics, even though they weren’t primarily economists themselves.
The pair have largely been credited for introducing the world to prospect theory which proposes that people value gains and losses differently, and are inclined to make decisions based on perceived gains rather than perceived losses.
Kahneman went on to receive a Nobel Memorial Prize in Economic Sciences in 2002, and in 2011 famously authored the best-selling book (listed in our Library) that summarised his research, titled Thinking, Fast and Slow. In 2015, news publication The Economist recognised Kahneman as the seventh most influential economist in the world.
Another behavioural economist and leading expert in the psychology of decision-making, Richard Thaler, expanded on much of the theory first laid out by Kahneman and Tversky and collaborated closely with them at Stanford University in California. Thaler was able to reconcile his expertise in economics with the works of Kahneman and Tversky to evolve and propel the field of behavioural finance forward.