Can you recommend one or two books on behavioral finance and investors' sentiment? Since there are many such books, I may only have time to glance at one book, which book is the one book you would recommend?
If we had to choose one book it would be "An Introduction to Behavioral Economics" by Nick Wilkinson – a book that will give you all information you need from the very beginning to sophisticated methods. However, there are many titles worth mentioning including: "Behavioral Economics and Its Applications" by Peter Diamond and "Advances in Behavioral Economics" by Colin F. Camerer.
On a side note, this is one of the parts of finance that we personally find the most interesting – for example did you know that people are generally risk-averse about gains but risk-loving about losses? Would you rather enter a 50/50 bet for winning 0% (not winning anything) or 10% or would you accept 4.99% right away? Most people will accept 4.99% even though it is a little smaller than the average of the two gains. The second part is really interesting – would you rather enter a 50/50 bet for losing 10% or losing 0% (not losing anything) or would you accept a 4.99% loss? Most people will prefer the bet in this case. If you answered like most people, please take a few moments to examine why – after all, you theoretically “should” be either risk-averse or not, right? Why would that depend on the fact if you’re winning or losing? Understanding this mechanism could help you in all your trading activities.
Back
