The Behavioural Finance Revolution: A New Approach to Financial Policies and Regulations (Behavioural Financial Regulation and Policy (BEFAIRLY) series)

Financial markets are complex. Regulators strive to predict ways in which they can malfunction and create rules to prevent this from happening, yet behavioural impacts are often overlooked. This book explores how behavioural finance can go hand-in-hand with traditional methods to help banks and regulators create better policies. It also demonstrates how the behavioural finance revolution has opened the way to a more integrated approach to the analysis of economic phenomena. This book adopts a forward-looking agenda that takes account of existing practices based on behavioural science. It focuses on how to make financial markets an arena for fair play as a central criterion for securing and enhancing societal well being. It examines how bounded rationality, heuristic decision making, aversion to losses, endowment effects and social preferences may impact financial decisions, thus exposing the flaws in traditional forecasting methods that rely on an over-simplified representation of the individual. With contributions from both academics and practitioners, this book will be fundamental reading for researchers in the finance and behavioural economics. Regulators who wish to utilise behavioural policymaking will also find this a beneficial read.Contributors include: B. Alemanni, C. Attia, M. Bianco, G. Bracchi, E. Cervellati, C. Cruciani, G. De Felice, M. Egidi, U. Filotto, F. Franceschi, G. Gardenal, G. Gigerenzer, C. Giorgiantonio, D. Hilton, N. Linciano, A. Lojschova, D. Masciandaro, B. Mojon, P. Mottura, S. Mousavi, A. Penalver, L. Portelli, U. Rigoni, S. Rossi, Z. Rotondi, G. Sillari, A. Varaldo, R. Viale, G. Zevi Front Matter Copyright Contents List of figures List of tables List of contributors Foreword Preface PART 1: THE MANY FACES OF FINANCE IN ACADEMIA 1 Understanding financial behaviour for better policy making: an introduction 2 Behavioral policymaking with bounded rationality 3 A taxonomy of behavioural policies 4 Do regulators know better? 5 Behavioral finance and the effects of non-conventional monetary policies 6 The psychology of financial choices: from classical and behavioral finance to neurofinance 7 Behavioral re-evolution: how behavioral economics has evolved and is evolving 8 Evolutionary regulation and financial behavior 9 Recent advances in behavioural macroeconomics and lessons for policymakers PART 2: FINANCE FROM THE VIEWPOINT OFPSYCHOLOGY, BANKS, REGULATORS AND INDUSTRY 10 The heuristics revolution: rethinking the role of uncertainty in finance 11 The psychology of financial incompetence: past, present and future 12 Behavioral finance: from financial consumer protection to financial education 13 Behavioral impact of policies for the start-up and Venture Capital ecosystem 14 Investors’ inconsistencies and the need for better financial literacy 15 How behavioural finance can reshape financial consumer protection: Consob’s first steps in the European framework 16 When central bankers become humans: behavioral economics and monetary policy decisions 17 Trust the change? Trust and the impact of policy making: the case of the introduction of the MiFID II Directive in the financial advisory industry 18 CMU and the role of institutional investors: investment behavior and governance of pension funds 19 Italian households’ wealth and their financial attitude: the new environment and a new approach Index Financial markets are complex. Regulators strive to predict ways in which they can malfunction and create rules to prevent this from happening, yet behavioural impacts are often overlooked. This book explores how behavioural finance can go hand-in-hand with traditional methods to help banks and regulators create better policies. It also demonstrates how the behavioural finance revolution has opened the way to a more integrated approach to the analysis of economic phenomena. This book adopts a forward-looking agenda that takes account of existing practices based on behavioural science. It focuses on how to make financial markets an arena for fair play as a central criterion for securing and enhancing societal well being. It examines how bounded rationality, heuristic decision making, aversion to losses, endowment effects and social preferences may impact financial decisions, thus exposing the flaws in traditional forecasting methods that rely on an over-simplified representation of the individual. With contributions from both academics and practitioners, this book will be fundamental reading for researchers in the finance and behavioural economics. Regulators who wish to utilise behavioural policymaking will also find this a beneficial read. Contributors B. Alemanni, C. Attia, M. Bianco, G. Bracchi, E. Cervellati, C. Cruciani, G. De Felice, M. Egidi, U. Filotto, F. Franceschi, G. Gardenal, G. Gigerenzer, C. Giorgiantonio, D. Hilton, N. Linciano, A. Lojschova, D. Masciandaro, B. Mojon, P. Mottura, S. Mousavi, A. Penalver, L. Portelli, U. Rigoni, S. Rossi, Z. Rotondi, G. Sillari, A. Varaldo, R. Viale, G. Zevi