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Emotions, Bayesian Inference, and Financial Decision Making

Salzman, Diego ; Trifan, Emanuela (2008)
Emotions, Bayesian Inference, and Financial Decision Making.
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Item Type: Report
Type of entry: Primary publication
Title: Emotions, Bayesian Inference, and Financial Decision Making
Language: English
Date: 20 November 2008
Place of Publication: Darmstadt
Series: Darmstadt Discussion Papers in Economics
Series Volume: 166

This paper presents a model in which rational and emotional investors are compelled to make decisions under uncertainty in order to ensure their survival. Using a neurofinancial setting, we show that, when different investor types fight for market capital, emotional traders tend not only to influence prices but also to have a much more developed adaptive mechanism than their rational peers, in spite of their apparently simplistic demand strategy and distorted revision of beliefs. Our results imply that prices in financial markets could be seen more accurately as a thermometer of the market mood and emotions rather than as simple informative signals as stated in traditional financial theory.

Uncontrolled Keywords: Judgement under uncertainty, Bayesian Inference, Behavioral Finance, Decision Making, Emotions
URN: urn:nbn:de:tuda-tuprints-47665
Additional Information:

JEL classification: G1; Erstellt März 2006

Classification DDC: 300 Social sciences > 330 Economics
Divisions: 01 Department of Law and Economics
01 Department of Law and Economics > Volkswirtschaftliche Fachgebiete
Date Deposited: 20 Nov 2008 08:25
Last Modified: 25 Oct 2023 09:35
URI: https://tuprints.ulb.tu-darmstadt.de/id/eprint/4766
PPN: 378322001
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