Differences between Behavioral Finance and Conductive Finance

Yesterday, I opened the new book Behavioral Finance by Professor Lu Rong of Shanghai University of Finance and Economics, and I was attracted by vivid words from the beginning. It may be because books come from the preparation of pronunciation courses, so readers can feel the colloquial text design in the process of reading, as if you are not reading, more like teacher Lu Rong standing in front of you and explaining it in person.

This book is divided into six chapters. The first three chapters focus on the principles of behavioral finance, including its definition, cognitive irrationality and decision irrationality. The fourth chapter introduces the application of behavioral finance, mainly focusing on avoiding one's own mistakes and how to make use of others' mistakes to gain investment income. Chapters 5 and 6 talk about behavioral investment strategies, mainly about the predictability of the market and portfolio, and how to obtain risk-free returns. It can be said that every sentence in this book is dry goods, which is worth learning from each of us. This week, I will briefly share with you the differences between behavioral finance and traditional finance.

It can be seen that traditional finance studies what the market should be like. From the perspective of balance, there should be no 100 USD on the ground, which is a long-term trend and law. Behavioral financiers study what a real market is.

Therefore, behavioral financiers pay more attention to the actual situation of the present. This is the difference between traditional finance and behavioral finance.

Traditional finance thinks that finance is only the demonstration of the basic theory of economics in the financial market, and the most basic assumption of economics is that "man is rational". In the long run, judging from the huge group sample, this huge group of human beings is rational as a whole. When there is a dividend in the market, someone will definitely be hollowed out and finally the dividend will disappear. This is also the "efficient market hypothesis" theory put forward by the famous economist Eugene Fama.

Behavioral financiers, on the other hand, believe that behavioral finance belongs to a social discipline, which studies the social operation law related to people, and the decision on what to buy and sell in the financial market is made by people. Therefore, of course, finance should first study problems from the perspective of people, not from the perspective of mathematics. This is the research field of psychology.

It is precisely because the price in the financial market is determined by people that the price fluctuates. Therefore, it is very common for 20 yuan-valued stocks in the stock market to be fired in 40 yuan. 0 yuan's stock with a value of1is not popular with everyone and can only be sold for 5 yuan. Therefore, as long as there is wrong pricing, there is room for arbitrage.

So fundamentally speaking, the real difference between traditional finance and behavioral finance is the difference between "efficient market hypothesis" and "wrong pricing". In other words, it is the difference between "man is rational" and "man is irrational". Let's put it in a more popular way, that is, "human beings are rational for a long time" and "individuals are irrational for a short time".

This book is very exciting. Today I will share with you the brief content of the opening 1, and continue to share with you the wonderful chapters next week.