Behavioral Finance: Avoiding Bad Behaviors in Perilous Times
- Summary
The CFO Alliance's New York Chapter met on Tuesday, March 9, 2010 to discuss Behavioral Finance and it's implications for the CFO. The general agenda was as follows:
What is behavioral finance?
What’s the impact and why does it matter?
How do you manage and proactively counteract behavioral biases?Some of the key take aways were:
Behavioral Finance can offer insight on how to do business better
It is important to be Informed & Aware
The CFO needs to Manage, Counteract, & Utilize
In order to avoid bad behaviour, the CFO can:
Manage negative effects of behavioral biases
Be cautiously pessimistic (overconfidence bias)
See the “big picture” (mental accounting, framing bias)Utilize biases for positive gains
Compensation schemes (loss aversion bias)
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- Keywords
- risk management, management, finance, insurance, legal
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Comments
One of the tables commented that "a tendency exists for both investors, managers, and consumers to act irrationally. The table felt actions can be driven by feelings of fear of missed opportunities and a lack of acceptance of the realities of the any given situation; i.e. viewing things through rose colored glasses."