Psychology of Money

Readings in behavioral finance

Overview

The citations shown below are books and articles in the field of behavioral finance and related subjects. They are listed them roughly in order of their relevancy and significance.

Thinking Fast and Slow, 2013, by Nobel Laureate Daniel Kahneman. This is an excellent book, albeit long and dense, that summarizes Kahneman’s life work. Kahneman won the Economics Nobel Prize for his contributions to behavioral economics. “Part IV Choices” is probably the most relevant section of the book as it focuses on prospect theory, risk tolerance, and loss aversion.

Choices, Values, and Frames, 1984, by Daniel Kahneman and Amos Tversky. This article appeared in the journal American Psychiatrist. It offers a short summary of some of Kahneman and Tversky’s most important work to that point. It covers many of the same areas as Thinking Fast and Slow, but with considerably more brevity.

Nudge: Improving Decisions About Health, Wealth, and Happiness, 2009, by Richard Thaler and Cass Sunstein. Similar to Thinking Fast and Slow, this book summarizes the work of another major figure (Thaler) in behavioral economics. This is more of a “how to” book about improving financial decision-making.

Predictably Irrational: The Hidden Forces That Shape Our Decisions, 2010, by Dan Ariely. Ariely is a major thought leader in the field of behavioral economics.

Black Swan: The Impact of the Highly Improbable, 2010, and Fooled by Randomness, 2005, by Nassim Nicholas Taleb. A bit off the subject of behavioral investing, but they still provide valuable insights into the fallibility of human decision-making and our inherently poor grasp of probability, randomness, and statistics.

What Are You Worth?, 1989, by Edward (Ned) Hallowell, M.D., with William Grace. This book is unfortunately out of print, but was arguably way ahead of its time. It was one of, if not the first book to examine the relationship between emotions and financial decision-making for the average person.

The Little Book of Behavioral Investing: How Not to Be Your Own Worst Enemy by James Montier, 2010.  This is a nicely written book that uses findings from Kahneman, Thaler, and others to provide advice on how not to shoot yourself in the foot when investing.

The Psychology of Money, 1998, by Michael Argyle and Adrian Furnham. This book is a little dated and has a British/Euro slant to it. Still, it contains useful findings around how emotions can drive financial decision-making. It is more for an academic audience than the general reader.

The Psychology of Wealth: Understand Your Relationship with Money and Achieve Prosperity, 2012.  Written by psychologist Charles Richards, it is more of an investment guide.

Happy Money: The Science of Smarter Spending by psychologist Elizabeth Dunn and Harvard Business School professor Michael Norton, 2013.  This highly publicized book points out how buying experiences rather than things, learning to give rather than hoard, and other changes in how you spend your money can make you happier without changing your financial situation.