Investor Behavior: The Psychology of Financial Planning and Investing

CHAPTER 13

Financial Therapy: De-Biasing and Client Behaviors

Joseph W. Goetz

Associate Professor of Financial Planning, University of Georgia

Jerry E. Gale

Associate Professor of Marriage and Family Therapy, University of Georgia

INTRODUCTION

The research fields of behavioral finance/economics and neuroeconomics have made great progress in explaining individuals' financial behavior as well as the factors that shape financial decision-making. Behavioral finance researchers clearly show that individuals are subject to cognitive and emotional biases that may lead to suboptimal financial decisions. Similarly, as documented in medicine, patients do not always follow best medical practices, which have led to the merging of medicine with the behavioral sciences (McDaniel, Hepworth, and Doherty 1992; Marmot 2005; Gale, Goetz, and Britt 2012). The field of neuroeconomics further explains these biases affecting financial behaviors from a physiological perspective and presents clear implications for financial planners (Goetz and James 2008). Therefore, the integration of multiple disciplines is a foundation for the new field of financial therapy. Financial therapy blends knowledge from the fields of financial planning and mental health services to better understand financial behavior and implement interventions to improve financial and relational well-being.

Despite much empirical data corroborating the fact that cognitive biases and emotions have an integral role in financial decisions ...