A Fast and Frugal Finance

Chapter 5

When fast-and-frugal works best

Abstract

For any new financial school of thought to gain ground it must show its value-added. We ask when is a fast-and-frugal approach to finance most effectively, or insightfully deployed? We argue this will be when outcomes are uncertain, rather than risky. Secondly when the current “repair program” aspect of behavioural finance relies on ad-hoc adjustments to investor's/trader's utility functions that have little convincing evidence to support them. Overall we argue these sorts of contexts are sufficiently pervasive to make a fast-and-frugal finance a powerful new perspective within finance scholarship. We introduce Probabilistic Mental Models as an alternative, lexiographic, framework for financial ...