Traditional economists and financial professors like to pretend that we live in a rational world, but a growing body of evidence challenges many of these basic assumptions. Evidence from psychology demonstrates that there are limits to human rationality, and that cognitive and emotional biases are a part of the package. Thankfully, a growing number of economists and financial experts are starting to incorporate some of this knowledge into their theories.
Victor Ricciardi is a Finance Professor at Goucher College in Baltimore, Maryland. He is an expert in behavioral finance and recently, I had the pleasure of reading several book chapters he has written on the psychology of risk.