Okay, Boomer: Why Behavioral Finance is No Longer Cool

Behavioral Finance

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As any hipster will argue, if it’s mainstream, it’s lame.

Author and Shaping Wealth founder Brian Portnoy caused a minor Twitter stir this week by claiming behavioral finance in theory has significantly outpaced its application, with many tweeps agreeing the “galvanized discipline” is now dull.

What earned Daniel Kahneman and Richard Thaler Nobel Prizes and Moneyball writer Michael Lewis millions is now a disappointment.

The 27-tweet thread, heavy on pop culture GIFs, began with an early timeline of “BeFi’s” identification and acceptance, including TED talks and prominent placements in airport bookstores that were “fun books about smart people doing stupid things.”

“But have these rich and varied insights into human psychology actually helped real people make better financial decisions?” Portnoy (not Dave’s cousin) rhetorically asked. “Not much, no.”

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Claiming the field is a victim of its own success, it faltered, and its misapplication by advisors who diagnose “their clients’ bias and [create] strategies to evade or (lord help me) fix them,” were to blame.

“Bottom line: Behavioral finance generates fascinating insights but hasn’t had much practical impact on financial advisors and their clients seeking to make better financial decisions, let alone achieve financial wellbeing,” Portnoy depressingly noted in unlucky Tweet No. 13.

The solution, he says, is to “move on from biases” (meaning the almost exclusive focus on preconceived notions that do us harm) to *applied* behavioral finance*, or 2.0. It must be more practical; start in the proverbial ivory tower but quickly pivot to measurable benefits. And quit labeling normal human behavior as stupid or irrational, advocating instead for an “it just is” mindset.

Also, drop the obsession with what’s wrong with us, and begin to focus on what’s right. 

“Lastly, let’s finally accept that humans are storytellers, not calculators,” Portnoy wrote. “Yes, finance, numbers, decimals, etc. But we’re talking about better lives, about funded contentment here. Money is a story. Risk is a story. Well-being is a story. Write yours.”

Heavy hitters noticed and approved, with The Wall Street Journal’s Jason Zweig expressing solidarity by linking to his Harvard University speech in 1999(!) that described a similar view. And Morningstar’s Christine Benz criticized BeFi’s manipulation by advisors to justify fees. 

“These revised frames help us execute a ‘human first’ approach to financial advice,” Portnoy concluded. “And to do our part in helping others achieve funded contentment. Stay tuned for a lot more from us on all this in 2022.”

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