Originally Posted by JohnDoe As an NF what do you think of behavioral finance?

Well lets break this up into speculation and investing.
Speculation is when you buy a stock on an open exchange, and investing is when you directly invest into a company, IE buy LPs or DPPs. I think people are basically rational when it comes to large sums of money. When I present an investment to stock brokers they want to know objective facts and a good story to relay the complex data behind the investments such as micro, macro, regulations, projections etc.

Where BF needs to take quantum leaps is not so much about how emotion plays in to financial decisions but how we deal with incomplete information. At all times no one has the full story and cant know the full story on a capital contribution. IE I'm trying to raise capital to drill 100 wells in Tennessee. I mean there is no way how to project with certainty production of the wells, price of the wells (you can come in with a very low margin of error) and especially price of natural gas and oil. You cant predict any environmental hazards or tax law changes that may happen 20 years from now. How do you deal with that? How do you value that? How do you tell someone this is a good investment or bad? Well at what point do comparables apply or don't apply. At what time horizon is to far out in the future to be relevant? At what point do you not have enough information. At what point do you have to much risk, and how do you quantify it. Just because the standard deviation of x was 1 why cant it be 10 tomorrow? (look at price of oil last year)

Basically you take comparables and extrapolate into the future but is that "an emotional" process? To a certain extent it is. In the end it is a gut feeling. This is where I'd like to see more BF studies.

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Whoa! What did that even mean? Is behavioural finance like saying, Ok, people are scared, so the market is going to go down?