The 2002 Nobel prize in economics went to some of the founders of the field of behavioral finance. Basically, they showed that humans are not perfectly rational actors, as had been assumed in many economic models for decades. Related research has shown that people make investing decisions often on an emotianal basis, as opposed to a rational plan.
I just read about a recent story in the Wall Street Journal (sorry, no link) describing some research into people with damage to their brains that made them less capable of feeling emotions (at least those related to investing). They compared these people with "normal" people to see who did better at investing. And guess what? The people whose brains didn't let them feel emotions about investing performed better.
Posted by Tom Nugent at July 22, 2005 01:11 PM