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Behavioural Economics Explains Employee Retirement Savings Choices

Idea posted: October 2017
  • Finance

A groundbreaking 2004 journal article showed how behavioural economics could explain self-defeating retirement savings decisions made by employees. It was an early example of the power of behavioural economics over standard economic theory by the ‘father of behavioural economics’.

Idea #680
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Beware of Over-Optimistic Investors Skewing High-Risk Stock Prices

Idea posted: September 2015
  • Strategy
  • Finance

Investor sentiment has a, sometimes erroneous, effect on stock market valuations. There is evidence that higher risk stocks become overpriced in periods of optimistic sentiment and undervalued when sentiment is pessimistic. Optimism attracts equity investment by unsophisticated, overconfident, retail investors in risky opportunities while such traders are less active in pessimistic periods. Thus sentiment can wrongly influence company share prices, and both investors and CFOs planning financial strategy should be wary.  

Idea #549
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