Before I read the article and watch the video about Behavioral Finance, I did a brief prediction on what this is. To me, behavioral finance has to do with the way the economy reacts, like when President-elect Donald Trump was winning the election, the stock market went down a little. In other words, what is happening in the country can affect the economy as a whole.
The video that was presented by Mr. Stephan Meier, a Pitaro Associate Professor of Business at Columbia Business School, was not too lengthy; however, the video was shooting right on his face and not the slideshow behind him. It made it harder to understand what he was trying to say. His gestures were vivid and his public speaking skill is on point, but I had a hard time understanding what he wanted to address. I am a visual learner, so I have to see it to absorb the knowledge. What I caught from the video was that there can be different behaviors from different people at different age, such as if you give an object to a 3-year-old in compare to a teenager, or an adult, their behaviors would be very different.
The 3-year-old would be less patience than the other two people because of their age and maturity. Since this presentation on the video was part of the Program for Financial Studies’ No Free Lunch Seminar Series, he also highlighted the fact that there is no free lunch in this world. No pain no gain! However, I was not able to get too much information from the video itself due to the sounds, lightning, and non-visual presentation. I would love to see the actual PowerPoint Presentation slides if possible to gain more about his points.
As I read the article written by Jay R. Ritter about Behavioral Finance, I found myself understanding this concept much more. He shared that “[an] example of an assumption about preferences is that people are loss averse – a $2 gain might make people feel better by as much as a $1 loss makes them feel worse” (Ritter, 2013, pp. 430, pp. 2). That is very true. When one goes to shopping at a supermarket and found out that they have bought an item that is $2 less than the regular price, they might feel happy about it. However, that item is something that is needed and must buy on that shopping trip, even $1 more than the usual price makes a big deal in their mind.
I agree that “[when] things change, people tend to be slow to pick up on the changes” (Ritter, 2013, pp. 434, pp. 5). Humans are just like other animals in this world. We also have routines; we adapt the new environment and blend into the routine and get used to it. When a new teacher comes to a school to teach on the first day, he or she might have an open mind on things to be added or taken out from what he or she had prepared to execute the lessons. However, as time goes on, after 5 years or 10 years of teaching the same grade or subjects, he or she has built a routine to teach well and therefore would not be easy to make changes to their already pre-set formatted way of teaching.
This is very commonly seen in many situations. Many people believe that the younger you are, the easier you can accept new things and make changes accordingly. I personally think it has to do with the person himself or herself. I have seen young kids as young as three years old can be stubborn about what he wants to do as well. Getting of one’s comfort zone is always the hardest part. Expanding their knowledge and vision outside of their world can help. Same thing to behavioral finance; when A happens, B is always the reaction. However, humans have the talent to modify such behavior and make our world a better place. Studying in depth about behavioral finance can help improve our economy.