Behavioral Finance for Private Banking, 2nd Edition

CHAPTER 14Conclusions

Over the last 30 years, behavioral finance has successfully integrated insights from psychology into finance to understand the behavior of investors and financial markets. Nowadays, behavioral finance is a well‐established and growing research area that also attracted the attention of practitioners, because it convincingly applied its scientific developments to their practical needs.

In this book, we argued that private banking can strongly profit from behavioral finance research to structure the wealth management process. The constant pressure on product margins and the advent of fintech initiatives is shifting the focus from products to services and personalization. Therefore, the wealth management process will face important transformations, from product centric to client centric. In this context, behavioral finance delivers the necessary scientific foundation to understand clients' needs as well as their decision‐making process, taking also into account the cultural dimension.

We discussed that behavioral finance differs from traditional finance on two important aspects. First, while traditional finance imposes rationality, behavioral finance recognizes that investors often behave irrationally. We described the most important behavioral biases, how they affect the behavior of investors, and how they can be mitigated. Second, traditional finance theory is normative (i.e., built on specific principles of rationality), while behavioral finance theory ...