Behavioral Finance and Investor Types: Managing Behavior to Make Better Investment Decisions

Chapter 6

The Behavioral Investor Type Framework

In the last two chapters we reviewed the history of personality theories and personality testing. I hope you now have a perspective on this subject that will provide a frame of reference for the next two chapters, which are the “meat and potatoes” of the book. In this chapter, we will bridge the gap between mainstream personality theories and introduce the theory behind “financial personality types” or behavioral investor types, as I call them (also referred to as BITs). Similar to the psychological typing theories that we read about earlier, BITs are models for various types of investors. This framework has four behavioral investor types: the Preserver, the Follower, the Independent, and the Accumulator. Each of these types will be reviewed in detail; in fact, each has its own chapter in this book.

Although the framework for the creation of BITs combines elements of a number of personality theories, it is most strongly influenced by the type theories and trait theories that we read about Chapter 4. Regarding type theories, BITs are in a classification scheme similar to Hippocrates's four original types, the Kiersey types, and the Myers-Briggs types. These types of schemes tend to over-generalize about personality traits (since people are rarely only one type of person), but they are a useful tool for organizing one's thoughts about how to compare one type of person versus another. Regarding trait theories, BITs are created to emphasize ...