In this essay we review the evidence from marketing research about price presentation of consumer products and discuss how these lessons have been applied—consciously or unconsciously—in the design of the U.S. tax system. Our perspective is that, in most situations, the designers of the tax system attempt to minimize the perceived burden of any given amount of tax collections. We allow, though,...

The evidence on limited computational ability implies that investors will have difficulty making optimal choices when information requires complex processing, such as aggregating risks across investments or time. The implication for investment advisors is that information should be processed and presented in a format that simplifies optimal choices. For example, individual investments could be ...

This article contributes to a better understanding of the process of entrepreneurial finance from a behavioral perspective. We specifically examine the cognitive features and interaction of three key-actors in entrepreneurial finance: entrepreneurs, business angels and venture capitalists and derive implications for performance (value creation and growth) when a young venture raises external eq...

A cademic Ž nance has evolved a long way from the days when the efŽ cient markets theory was widely considered to be proved beyond doubt. Behavioral Ž nance—that is, Ž nance from a broader social science perspective including psychology and sociology—is now one of the most vital research programs, and it stands in sharp contradiction to much of efŽ cient markets theory. The efŽ cient markets th...

Financial decisions can only be understood by considering individual behavior and its deviations from rational behavior. Financial markets are based on a multitude of decisions by individuals. Therefore it is only natural that decision theory plays a fundamental role in understanding financial markets. Probably the most important class of financial decisions are decisions under risk. They can b...

This chapter surveys the literature on the effects of behavioral biases on capital budgeting. A large body of the psychology literature finds that people tend to be overconfident and overly optimistic. Because of self-selection, firm managers tend to be even more affected by these biases than the general population. Indeed, the literature finds that biased managers overinvest their firm’s free ...