Open seminar with Professor Werner De Bondt: The behavioral revolution in finance

Welcome to an open seminar titled  “The behavioral revolution in finance” with Professor Werner De Bondt, Driehaus College of Business, DePaul University, Chicago.

Modern finance is the paradigm that has directed thinking in academic finance since the 1950s. It flows from a grand vision that aims to reconstruct society with individual rational action as its centerpiece. Behavioral finance took off in early 1980s. Its approach is nearly the opposite of modern finance. Behavioral finance does not assume rational agents or frictionless markets. Instead, it examines the psychology of financial decision-making. Furthermore, the institu­­­­ti­­onal environment is seen as critically important.

What has been learned? A key insight is that financial intuition is fragile. It is frequently and predictably flawed. Since decision processes shape decision outcomes, the study of judgment fiascoes helps us to understand, predict and impro­­ve decisions made in households and organizations. Also, widely shared self-reinforcing misconceptions (“eupho­­­ria and hysteria”) regularly cause transient price bubbles in world financial markets. Besides opportunities for profit, the errors of naive investors create much risk, sometimes with macro-economic effects. Policy makers have no choice but to pay close attention.

Werner De Bondt (Ph.D., Cornell University, 1985) is one of the originators of behavioral finance. He studies the psychology of financial decision-making. De Bondt is the Founding Director of the Richard H. Driehaus Center for Behavioral Finance at DePaul University in Chicago. Earlier (1992-2003), he was the Frank Graner Professor of Investment Management at the University of Wisconsin-Madison. During 2019-2020, he was the Thomas F. Gleed Chair of Business Administration at Seattle University. Over the years, he has also taught at universities in Belgium, The Netherlands and Switzerland. Werner De Bondt’s publi­ca­­tions have appeared in top academic journals. He is a frequent speaker to academics and investment professionals around the globe.

Welcome!