{"product_id":"behavioral-finance-and-wealth-management-isbn-9781118014325","title":"Behavioral Finance and Wealth Management","description":"\u003cb\u003eThe book that applies behavioral finance to the real world\u003c\/b\u003e  \u003cp\u003eUnderstanding how to use behavioral finance theory in investing is a hot topic these days. Nobel laureate Daniel Kahneman has described financial advising as a prescriptive activity whose main objective should be to guide investors to make decisions that serve their best interests. The reality? That's easier said than done. In the \u003ci\u003eSecond Edition\u003c\/i\u003e of \u003ci\u003eBehavioral Finance and Wealth Management\u003c\/i\u003e, Michael Pompian takes a practical approach to the growing science of behavioral finance, and puts it to use for real investors. He applies knowledge of 20 of the most prominent individual investor biases into \"behaviorally-modified\" asset allocation decisions. Offering investors and financial advisors a \"self-help\" book, Pompian shows how to create investment strategies that leverage the latest cutting edge research into behavioral biases of individual investors. This book:\u003c\/p\u003e \u003cul\u003e \u003cli\u003eShows investors and financial advisors how to either moderate or adapt to behavioral biases, in order to improve investment results and identifies \"the best practical allocation\" for investment portfolios. Using these two sound approaches for guiding investment decision-making, behavioral biases are incorporated into the portfolio management process\u003c\/li\u003e \u003cli\u003eUses updated cases studies to show investors and financial advisors how an investor's behavior can be modified to improve investment decision-making\u003c\/li\u003e \u003cli\u003eProvides useable methods for creating behaviorally modified investment portfolios, which may help investors to reach their long term financial goals\u003c\/li\u003e \u003cli\u003eHeightens awareness of biases so that financial decisions and resulting economic outcomes are improved\u003c\/li\u003e \u003cli\u003eOffers advice on managing the effects of each bias in order to improve investment results\u003c\/li\u003e \u003c\/ul\u003e \u003cp\u003eThis \u003ci\u003eSecond Edition\u003c\/i\u003e illustrates investors' behavioral biases in detail and offers financial advisors and their clients practical advice about how to apply the science of behavioral finance to improve overall investment decision making.\u003c\/p\u003e \u003cp\u003ePreface xv\u003c\/p\u003e \u003cp\u003eAcknowledgments xxiii\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart One Introduction to Behavioral Finance 1\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 1 What Is Behavioral Finance? 3\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBehavioral Finance: The Big Picture 4\u003c\/p\u003e \u003cp\u003eStandard Finance versus Behavioral Finance 12\u003c\/p\u003e \u003cp\u003eThe Role of Behavioral Finance with Private Clients 19\u003c\/p\u003e \u003cp\u003eHow Practical Application of Behavioral Finance Can Create a Successful Advisory Relationship 19\u003c\/p\u003e \u003cp\u003eNotes 21\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 2 The History of Behavioral Finance Micro 23\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eHistorical Perspective on the Link between Psychology and Economics 23\u003c\/p\u003e \u003cp\u003eModern Behavioral Finance 27\u003c\/p\u003e \u003cp\u003ePsychographic Models Used in Behavioral Finance 36\u003c\/p\u003e \u003cp\u003eNotes 40\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 3 Introduction to Behavioral Biases 43\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eIntroduction 43\u003c\/p\u003e \u003cp\u003eBehavioral Biases Defined 44\u003c\/p\u003e \u003cp\u003eWhy Understanding and Identifying Behavioral Biases Is Important 45\u003c\/p\u003e \u003cp\u003eCategorization of Behavioral Biases 46\u003c\/p\u003e \u003cp\u003eDifferences between Cognitive and Emotional Biases 46\u003c\/p\u003e \u003cp\u003eDifference among Cognitive Biases 47\u003c\/p\u003e \u003cp\u003eEmotional Biases 48\u003c\/p\u003e \u003cp\u003eA Final Word on Biases 49\u003c\/p\u003e \u003cp\u003eSummary of Part One 50\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart Two Belief Perseverance Biases Defined and Illustrated 51\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 4 Cognitive Dissonance Bias 53\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 53\u003c\/p\u003e \u003cp\u003ePractical Application 55\u003c\/p\u003e \u003cp\u003eResearch Review 57\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 59\u003c\/p\u003e \u003cp\u003eAdvice 60\u003c\/p\u003e \u003cp\u003eConclusion 62\u003c\/p\u003e \u003cp\u003eNotes 62\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 5 Conservatism Bias 63\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 63\u003c\/p\u003e \u003cp\u003ePractical Application 64\u003c\/p\u003e \u003cp\u003eResearch Review 67\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 69\u003c\/p\u003e \u003cp\u003eAdvice 70\u003c\/p\u003e \u003cp\u003eNotes 71\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 6 Confirmation Bias 73\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 73\u003c\/p\u003e \u003cp\u003ePractical Application 75\u003c\/p\u003e \u003cp\u003eResearch Review 77\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 81\u003c\/p\u003e \u003cp\u003eAdvice 83\u003c\/p\u003e \u003cp\u003eNotes 84\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 7 Representativeness Bias 85\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 85\u003c\/p\u003e \u003cp\u003ePractical Application 87\u003c\/p\u003e \u003cp\u003eResearch Review 89\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 93\u003c\/p\u003e \u003cp\u003eAdvice 94\u003c\/p\u003e \u003cp\u003eNotes 97\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 8 Illusion of Control Bias 99\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 99\u003c\/p\u003e \u003cp\u003ePractical Application 100\u003c\/p\u003e \u003cp\u003eResearch Review 103\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 104\u003c\/p\u003e \u003cp\u003eAdvice 105\u003c\/p\u003e \u003cp\u003eFinal Thought 106\u003c\/p\u003e \u003cp\u003eNotes 106\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 9 Hindsight Bias 107\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 107\u003c\/p\u003e \u003cp\u003ePractical Application 108\u003c\/p\u003e \u003cp\u003eResearch Review 109\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 112\u003c\/p\u003e \u003cp\u003eAdvice 113\u003c\/p\u003e \u003cp\u003eNotes 114\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart Three Information Processing Biases Defined and Illustrated 117\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eOverview of the Structure of Chapters 10 through 16 117\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 10 Mental Accounting Bias 119\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 119\u003c\/p\u003e \u003cp\u003ePractical Application 121\u003c\/p\u003e \u003cp\u003eResearch Review 123\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 128\u003c\/p\u003e \u003cp\u003eAdvice 130\u003c\/p\u003e \u003cp\u003eThe Behavioral Finance Approach to Asset Allocation based on Mental Accounting 133\u003c\/p\u003e \u003cp\u003eNotes 134\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 11 Anchoring and Adjustment Bias 135\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 135\u003c\/p\u003e \u003cp\u003ePractical Application 136\u003c\/p\u003e \u003cp\u003eResearch Review 138\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 139\u003c\/p\u003e \u003cp\u003eAdvice 140\u003c\/p\u003e \u003cp\u003eBonus Discussion: Investment Strategies that Leverage Anchoring and Adjustment Bias 141\u003c\/p\u003e \u003cp\u003eNotes 142\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 12 Framing Bias 143\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 143\u003c\/p\u003e \u003cp\u003ePractical Application 145\u003c\/p\u003e \u003cp\u003eResearch Review 148\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 150\u003c\/p\u003e \u003cp\u003eAdvice 152\u003c\/p\u003e \u003cp\u003eNotes 153\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 13 Availability Bias 155\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 155\u003c\/p\u003e \u003cp\u003ePractical Application 157\u003c\/p\u003e \u003cp\u003eResearch Review 160\u003c\/p\u003e \u003cp\u003eDiagnostic Test 162\u003c\/p\u003e \u003cp\u003eAdvice 163\u003c\/p\u003e \u003cp\u003eNotes 164\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 14 Self-Attribution Bias 165\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 165\u003c\/p\u003e \u003cp\u003ePractical Application 166\u003c\/p\u003e \u003cp\u003eResearch Review 167\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 169\u003c\/p\u003e \u003cp\u003eAdvice 170\u003c\/p\u003e \u003cp\u003eNotes 171\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 15 Outcome Bias 173\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 173\u003c\/p\u003e \u003cp\u003eDiagnostic 176\u003c\/p\u003e \u003cp\u003eNotes 178\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 16 Recency Bias 179\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 179\u003c\/p\u003e \u003cp\u003ePractical Application 181\u003c\/p\u003e \u003cp\u003eResearch Review 184\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 185\u003c\/p\u003e \u003cp\u003eAdvice 187\u003c\/p\u003e \u003cp\u003eNotes 188\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart Four Emotional Biases Defined and Illustrated 189\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 17 Loss Aversion Bias 191\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 191\u003c\/p\u003e \u003cp\u003ePractical Application 193\u003c\/p\u003e \u003cp\u003eResearch Review 194\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 195\u003c\/p\u003e \u003cp\u003eAdvice 196\u003c\/p\u003e \u003cp\u003eNotes 197\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 18 Overconfidence Bias 199\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 199\u003c\/p\u003e \u003cp\u003ePractical Application 200\u003c\/p\u003e \u003cp\u003eResearch Review 201\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 203\u003c\/p\u003e \u003cp\u003eAdvice 206\u003c\/p\u003e \u003cp\u003eA Final Word on Overconfidence 208\u003c\/p\u003e \u003cp\u003eNotes 208\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 19 Self-Control Bias 211\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 211\u003c\/p\u003e \u003cp\u003ePractical Application 214\u003c\/p\u003e \u003cp\u003eResearch Review 216\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 219\u003c\/p\u003e \u003cp\u003eAdvice 220\u003c\/p\u003e \u003cp\u003eNotes 222\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 20 Status Quo Bias 223\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 223\u003c\/p\u003e \u003cp\u003ePractical Application 224\u003c\/p\u003e \u003cp\u003eResearch Review 225\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 226\u003c\/p\u003e \u003cp\u003eAdvice 228\u003c\/p\u003e \u003cp\u003eNotes 229\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 21 Endowment Bias 231\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 231\u003c\/p\u003e \u003cp\u003ePractical Application 232\u003c\/p\u003e \u003cp\u003eResearch Review 235\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 237\u003c\/p\u003e \u003cp\u003eAdvice 239\u003c\/p\u003e \u003cp\u003eNotes 240\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 22 Regret Aversion Bias 243\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 243\u003c\/p\u003e \u003cp\u003ePractical Application 244\u003c\/p\u003e \u003cp\u003eResearch Review 246\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 247\u003c\/p\u003e \u003cp\u003eAdvice 249\u003c\/p\u003e \u003cp\u003eNotes 251\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 23 Affinity Bias 253\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBias Description 253\u003c\/p\u003e \u003cp\u003eResearch Review 256\u003c\/p\u003e \u003cp\u003eDiagnostic Testing 258\u003c\/p\u003e \u003cp\u003eAdvice 259\u003c\/p\u003e \u003cp\u003eNotes 260\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart Five Application of Behavioral Finance to Asset Allocation and Case Studies 261\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 24 Application of Behavioral Finance to Asset Allocation 263\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003ePractical Application of Behavioral Finance 264\u003c\/p\u003e \u003cp\u003eBest Practical Allocation 266\u003c\/p\u003e \u003cp\u003eGuidelines for Determining Best Practical Asset Allocation 267\u003c\/p\u003e \u003cp\u003eQuantitative Guidelines for Incorporating Behavioral Finance in Asset Allocation 269\u003c\/p\u003e \u003cp\u003eInvestment Policy and Asset Allocation 271\u003c\/p\u003e \u003cp\u003eNotes 271\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 25 Case Studies 273\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eCase Study A: Mr. Nicholas 276\u003c\/p\u003e \u003cp\u003eCase Study B: Mrs. Alexander 281\u003c\/p\u003e \u003cp\u003eSummary of Case Studies 286\u003c\/p\u003e \u003cp\u003e\u003cb\u003ePart Six Behavioral Investor Types 287\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 26 Behavioral Investor Type Diagnostic Process 289\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eBackground of the Development of Behavioral Investor Types 290\u003c\/p\u003e \u003cp\u003ePsychographic Models of Investor Behavior 291\u003c\/p\u003e \u003cp\u003eEarly Psychographic Models 293\u003c\/p\u003e \u003cp\u003eThe Behavioral Alpha Process: A Top-Down Approach 295\u003c\/p\u003e \u003cp\u003eThe BIT Identification Process 296\u003c\/p\u003e \u003cp\u003eSummary 299\u003c\/p\u003e \u003cp\u003eNotes 300\u003c\/p\u003e \u003cp\u003e\u003cb\u003eChapter 27 Behavioral Investor Types 301\u003c\/b\u003e\u003c\/p\u003e \u003cp\u003eIntroduction 301\u003c\/p\u003e \u003cp\u003ePreserver 302\u003c\/p\u003e \u003cp\u003eFollower 305\u003c\/p\u003e \u003cp\u003eIndependent 308\u003c\/p\u003e \u003cp\u003eAccumulator 312\u003c\/p\u003e \u003cp\u003eSummary 315\u003c\/p\u003e \u003cp\u003eIndex 317\u003c\/p\u003e  \u003cp\u003e\u003cb\u003eMICHAEL M. POMPIAN, CFA, CFP,\u003c\/b\u003e is a partner at Mercer Investment Consulting, a firm serving institutional and private wealth clients. Prior to joining Mercer, he was a wealth management advisor with Merrill Lynch and PNC Private Bank, and served on the investment staff of a family office. Pompian is a Chartered Financial Analyst (CFA), a Certified Financial Planner (CFP), and a Certified Trust Financial Advisor (CTFA). He is also a member of the CFA Institute (formerly AIMR) and the New York Society of Security Analysts (NYSSA). He holds a BS in management from the University of New Hampshire and an MBA in finance from Tulane University. Pompian is a regular speaker on the subject of behavioral finance and has published several articles on the subject. He is married with three sons and can be reached at michael.pompian@mercer.com.   \u003c\/p\u003e\u003cp\u003eSince the first edition of \u003ci\u003eBehavioral Finance and Wealth Management\u003c\/i\u003e was published—in the wake of the bursting of the technology bubble in 2000—the world faced yet another economic crisis in 2008. Accompanying this crisis is a new level of market volatility, and both investors and advisors can benefit from a deeper understanding of behavioral finance and how it can help them achieve their long-term financial goals. That’s why author Michael Pompian, a wealth manager and practitioner at the forefront of the practical application of behavioral finance, has written the second edition of this book. \u003c\/p\u003e\u003cp\u003eAs an investment advisor, Pompian understands the behavioral biases that investors have. He has discovered specific ways to adjust investment strategies for these biases and in the \u003ci\u003eSecond Edition\u003c\/i\u003e of\u003ci\u003e Behavioral Finance and Wealth Management,\u003c\/i\u003e Pompian helps investors and their advisors develop a heightened awareness of these biases so that financial decisions, and resulting economic outcomes, can be improved. \u003c\/p\u003e\u003cp\u003eDivided into six comprehensive parts, this reliable guide opens with an introduction to the basics of behavioral finance, focusing on the aspects most relevant to individual wealth management. From here, Parts Two (Belief Perseverance Biases), Three (Information Processing Biases), and Four (Emotional Biases) define and illustrate a total of twenty of the most important biases—within the cognitive-emotional framework—for considering potential biases. For each of the twenty biases, Pompian uses the same basic format in discussing the bias, in order to promote greater accessibility. \u003c\/p\u003e\u003cp\u003eAfter covering the foundations of behavioral finance, the biases, Part Five turns to the main focus of this book: practical application of behavioral finance for investors and advisors. This section establishes a basic framework for integrating behavioral finance insights into portfolio structure and presents the concept of best practical allocation. It then takes the concepts presented and applies them in a case study format to reinforce learning. \u003c\/p\u003e\u003cp\u003eRounding out this detailed discussion, Part Six ties together many of the concepts covered in the book and introduces a new concept Pompian has developed to make behavioral finance easier to apply in practice. The idea of Behavioral Investor Types (BITs) is introduced along with the investment biases that are associated with each one. \u003c\/p\u003e\u003cp\u003eUpdated to reflect current market conditions, this reliable resource skillfully illustrates investors’ behavioral biases in detail and offers financial advisors and their clients practical advice about how to apply the science of behavioral finance to improve overall investment decision making.    \u003c\/p\u003e\u003cp\u003e\u003cb\u003ePraise for the first edition of Behavioral Finance and Wealth Management\u003c\/b\u003e \u003c\/p\u003e\u003cp\u003e“Pompian is handing you the magic book, the one that reveals your behavioral flaws and shows you how to avoid them. The tricks to success are here. Read and do not stop until you are one of very few magicians.”\u003cbr\u003e \u003cb\u003e—Arnold S. Wood,\u003c\/b\u003e President and Chief Executive Officer, Martingale Asset Management \u003c\/p\u003e\u003cp\u003e“I wish this book had been available a decade ago; by understanding behavioral biases, clients and professionals can stay focused and comfortable throughout the markets’ bubbles and doldrums. Michael Pompian moves our profession forward by proposing a standardized structure for this approach.”\u003cbr\u003e \u003cb\u003e—Elizabeth K. Miller,\u003c\/b\u003e CFA, Managing Director, Trevor Stewart Burton \u0026amp; Jacobsen Inc., and former chair, New York Society of Security Analysts’ Wealth Management Committee \u003c\/p\u003e\u003cp\u003e“Many inefficiencies in the market are the result of how investors let their emotions dictate their investment decisions. Michael Pompian’s work provides a framework to understand why these inefficiencies exist, and how they can provide investors with significant profit-making opportunities.”\u003cbr\u003e \u003cb\u003e—Stanley G. Lee,\u003c\/b\u003e CFA, Principal, David J. Greene \u0026amp; Company, LLC \u003c\/p\u003e\u003cp\u003e“Michael Pompian has created a valuable resource for investors and those in the wealth management community by not only explaining a number of important behavioral biases, but also giving them actionable steps to reduce biases and improve investment performance.”\u003cbr\u003e \u003cb\u003e—John M. Longo, \u003c\/b\u003ePhD, CFA, Senior Vice President, Investment Strategy, The MDE Group, Inc., and Adjunct Professor of Finance, Rutgers University Graduate School of Management\u003c\/p\u003e","brand":"Wiley","offers":[{"title":"Default Title","offer_id":47988800356581,"sku":"NP9781118014325","price":84.0,"currency_code":"USD","in_stock":false}],"thumbnail_url":"\/\/cdn.shopify.com\/s\/files\/1\/1842\/7735\/files\/9781118014325.jpg?v=1761781639","url":"https:\/\/k12savings.com\/es\/products\/behavioral-finance-and-wealth-management-isbn-9781118014325","provider":"K12savings","version":"1.0","type":"link"}