Investor Behavior: The Psychology of Financial Planning and Investing

CHAPTER 10

Motivation and Satisfaction

Lewis J. Altfest

Associate Professor of Finance, Pace University

INTRODUCTION

This chapter focuses on the linkages among motivation, satisfaction, and personal finance. Motivation provides the incentive to take certain actions. For many, the actions often coalesce around establishing certain goals. Satisfaction can be viewed as the feelings of pleasure surrounding the movement toward and the achievement of those objectives. Personal finance has traditionally made those goals tangible by attempting to measure them using objective values such as money. Financial planning is fundamentally concerned with the process that directs people to efficient progress toward reaching their goals or objectives.

Financial planning in practice includes the realm of behavioral economics and behavioral finance. It deals with how people really think and act as opposed to the classical economics rational man theory that indicates how they should act. The behavioral approach takes its cues from psychology as well as economics and finance.

The chapter has the following organization. It begins by examining the roots of economic theory, particularly Modigliani's Life Cycle Theory, which serves as a basis for personal financial planning. This chapter then covers behavioral finance. This is followed by a detailed discussion of what motivates people beyond money. This part of the chapter is an empirical analysis based on the seminal work by the psychologist Abraham Maslow ...