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The Psychology and Neuroscience of Financial Decision Making

Frydman, Cary and Camerer, Colin F. (2016) The Psychology and Neuroscience of Financial Decision Making. Trends in Cognitive Sciences, 20 (9). pp. 661-675. ISSN 1364-6613. doi:10.1016/j.tics.2016.07.003.

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Financial decisions are among the most important life-shaping decisions that people make. We review facts about financial decisions and what cognitive and neural processes influence them. Because of cognitive constraints and a low average level of financial literacy, many household decisions violate sound financial principles. Households typically have underdiversified stock holdings and low retirement savings rates. Investors overextrapolate from past returns and trade too often. Even top corporate managers, who are typically highly educated, make decisions that are affected by overconfidence and personal history. Many of these behaviors can be explained by well-known principles from cognitive science. A boom in high-quality accumulated evidence–especially how practical, low-cost ‘nudges’ can improve financial decisions–is already giving clear guidance for balanced government regulation.

Item Type:Article
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Camerer, Colin F.0000-0003-4049-1871
Additional Information:© 2016 The Authors. Published by Elsevier Ltd. This is an open access article under the CC BY-NC-ND license ( Available online 5 August 2016.
Subject Keywords:finance; bubbles; trading biases; stock market; decision making; neuroeconomics
Issue or Number:9
Record Number:CaltechAUTHORS:20160815-092306994
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Official Citation:Cary Frydman, Colin F. Camerer, The Psychology and Neuroscience of Financial Decision Making, Trends in Cognitive Sciences, Volume 20, Issue 9, September 2016, Pages 661-675, ISSN 1364-6613, (
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:69620
Deposited By: Tony Diaz
Deposited On:15 Aug 2016 17:18
Last Modified:11 Nov 2021 04:17

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