Richard Taffler on Emotional Finance

Two sessions featuring academics today illustrated why this is one of our favourite events on the pro-am hedge fund conference tour (see Tuesday’s posting if you don’t know what we’re talking about).  One session dealt with the intersection of investing and emotion while the other addressed how one particular emotion – greed – may be the driving force behind at least a few hedge funds (who knew?).

Richard Taffler is a finance and accounting professor at the University of Edinburgh with an uncommon command of psychology.  He is one of the proponents of a new field of study called emotional finance (see a previous guest posting on this topic).  Unlike its close relative behavioural finance, Taffler’s emotional version focuses on the deep psychological affirmations received by making particular investment decisions.  His presentation borrowed from psychoanalysis and was probably the first presentation we’ve ever seen at a hedge fund conference that included the words Freud, Oedipal, and infantile.

He puts this framework to use by attempting to explain the collective delusion investors experienced during the dot-com bubble (see his academic paper on the topic – actually quite readable).

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