I close w it h suggest ions for fut ure research. First , given t he large grab bag of possible behavioral biases t o choose f rom , building a financial m odel by just assuming some behavior t hat seems plausible, or even by invoking a docum ent ed psychological bias, is not alw ays compelling. A healt hy nascent t rend in behavioral economics and finance has been t o run laborat ory and field experiment s t hat closely mat ch t he decision environment assumed in t he financial model.
Second, t he affect ive revolut ion in psychology of t he 1990s, w hich elucidat ed t he cent ral role of feelings in decision-making, has only part ially been incorporat ed int o behavioral finance. M ore t heoret ical and em pirical st udy is needed of how feelings affect f inancial
decisions, and t he implicat ions of t his for prices and real out comes. This t opic includes moral at t it udes t hat infuse decisions about borrow ing/ saving, bear ing r isk, and exploit ing ot her market part icipant s.
Third, behavioral finance should cont inue it s evolut ion from broad descript ions of imperfect rat ionalit y and it s consequences, such as noise t rading or sent iment , t oward analysis of part icular psychological biases or cat egories of effect s (e.g., overest im at ion of mean payoff,
44
underest im at ion of risk, or shift ing risk preferences). Doing so will nat urally draw m ore f ocused at t ent ion t o specific pat hw ays of causalit y, t hereby helping t o address endogeneit y issues in some t est s of t he effect s of sent iment or media.
M ost import ant ly, t here is a need t o move f rom behavioral finance t o social finance (and social economics). Social finance includes t he st udy of how social norm s, m oral at t it udes, religions and ideologies af fect financial behaviors (Hilary & Hui (2009), Hong et al. (2009), Kum ar (2009), Kumar et al. (2011), M cguire et al. (2012), Hong & Kost ovet sky (2012), Hut t on et al. (2013)), and how ideologies t hat affect financial decisions form and spread. This ent erprise will draw on social psychology and sociology as well as cognit ive psychology and decision t heory, and will require focused at t ent ion t o t he microst ruct ure of social t ransact ions.
Previous research has document ed t he spread of invest ment and managerial behaviors t hrough observat ion of public behaviors or t hrough social net w orks (see, e.g., t he review of Hirshleifer & Teoh (2009b)). How ever, mere cont agion is consist ent w it h t he spread of alm ost any behavior. To derive richer im plicat ions, it w ill be crucial t o underst and t he t ransmission biases and amplificat ion processes t hat make some invest ment ideas spread more easily t han ot hers. An init ial set of leads is provided in t he survey evidence and discussions of Robert Shiller (e.g., Shiller (2000)). Recent research has begun t o model social t ransmission biases (Han &
Hirshleifer (2014)) and t est for t heir financial effect s (Simon & Heimer (2012); Kaust ia &
Knüpfer (2012)).
Analysis of social int eract ions promises t o provide great er insight int o where heurist ics come fr om (since t hey are far from ent irely innat e), and t o offer a foundat ion for underst anding
45
shift s in invest or sent iment . As such, it can pot ent ially offer a deeper basis f or underst anding t he causes and consequences of financial bubbles and crises. Even more fundament ally, underst anding how financial ideas spread from person t o person may event ually suggest
t heories of how invest m ent and corporat e ideologies, such as value versus grow t h philosophies, or t he belief t hat indebt edness is bad, evolve.
Behavioral finance has primarily focused on individual level biases. Social finance promises t o offer equally fundament al insight , and t o be a w ort hy descendant of behavioral finance.
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