Behavioral finance: insights from experiments I: theory and financial markets

The purpose of this paper, and a companion paper (Duxbury, 2015), is to review the insights provided by experimental studies examining financial decisions and market behavior.

Focus is directed on those studies examining explicitly, or with direct implications for, the most robustly identified phenomena or stylized facts observed in behavioral finance. The themes for this first paper are theory and financial markets.

Experiments complement the findings from empirical studies in behavioral finance by avoiding some of the limitations or assumptions implicit in such studies.

The authors synthesize the valuable contribution made by experimental studies in extending the knowledge of the functioning of financial markets and the financial behavior of individuals.