Behavioral Finance: Quo Vadis?

Behavioral finance endeavors to bridge the gap between finance and psychology. Now an established field, behavioral finance studies investor decision processes which in turn shed light on anomalies, i.e., departures from neoclassical finance theory. This paper is the summary of a panel discussion. It begins by reviewing the foundations of finance and it ends with a discussion of the future of behavioral finance and a self-critique. We describe the move from the standard view that financial decision making is rational to a behavioral approach based on judgmental heuristics, biases, mental frames, and new theories of choice under risk. A new class of asset pricing models, which adds behavioral elements to the standard framework, is proposed