A New Paradigm for Practical Application of Behavioral Finance

Abstract

The authors believe that the next phase in the practical application of behavioral finance is to correlate established investor biases with the psychographic and gender profiles of specific investors. They ask, “Are certain personality types or genders susceptible to biases identified in the behavioral finance literature? If so, can this information be helpful to investors and advisors?” Their study examines the responses of 100 investors given a detailed Myers-Briggs Type Indicator® personality test and a questionnaire designed to reveal investor biases. They find that personality types and genders are differentially susceptible to numerous investor biases; accordingly, they introduce a new paradigm of practical application of behavioral finance that leverages their findings.