This month Richard Thaler won the Nobel Prize for Economics. The field of economics has recently been accused of irrelevance, in part for relying on models that assume that individuals act rationally. Thaler, author of Nudge and others, is part of a new wave of behavioural economists – thinkers who are trying to make economics more useful by incorporating what it is to be human: our emotions.
In fact, economics realised its shortcomings a while ago, awarding Daniel Kahneman the prize in 2002 for his work on judgement, biases and irrationality. Whilst economic theory may be learning to change, the question is whether investment theory has? Similarly to economics, investing has some basic models that sit at the core, including the concept of “maximising risk-adjusted returns”.
We’ve worked with a team of behavioural finance experts, led by Greg Davies PhD, to show that this concept may not be appropriate. Particularly if you’re human. Read our Investing for Humans paper.