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Real-world Applications Of Behavioral Finance

Immelt said in May that the company still planned to expand GE Capital's core business, which is commercial lending. He also told his audience that capital markets were receptive to IPOs. GE's stock has climbed nearly 11 percent so far this year. @yahoofinance on Twitter, become a fan on Facebook Related Content Chart Your most recently viewed tickers will automatically show up here if you type a ticker in the "Enter symbol/company" at the bottom of this module. You need to enable your browser cookies to view your most recent quotes. Search for share prices Copyright/IP Policy Quotes are real-time for NASDAQ, NYSE, and NYSEAmex when available.

In Nudge, a book by Cass Sunstein and Richard Thaler, a leading behavioral finance professor, the two recommend that companies institute autopilot 401 (k) savings plans. Autopilot savings counteract reluctant savers who are prone to inertia by automatically enrolling them. Plans where participants need to opt- in have 68% rates of participation after 36 months of employment whereas plans where participants are automatically enrolled and need to opt-out to leave, have a 98% rate of participation. Besides increasing the number of participants, behavioral finance principles can be applied to increase the amount saved. Thaler and Shlomo Bernartzi, a UCLA economics professor, developed a savings plan called Save for Tomorrow where participants committed to saving portions of their future income increases for retirement. When experimenting with the Save for Tomorrow plan, Thaler and Bernartzi found that within half a year, those who had previously had trouble saving, were saving three percent of their paychecks. After three and a half years, they were saving nearly 14 percent of their paychecks . In 2006, the Save for Tomorrow plan was incorporated into the Pension Protection Act, a law that clarifies legal issues regarding automatic income reduction and helps specify appropriate default investments. Be Honest with Yourself For individual investors or money managers, behavioral finance experts suggest a few strategies to be more http://www.firstfinancialuk.com rational. Most of their suggestions are complements to traditional quantitative methods of evaluating investments.

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