History of Behavioral Finance
The roots of behavioral finance trace back to 1912, with the publication of George Seldon’s Psychology of the Stock Market. However, it wasn’t until 1979 that the theory gained significant traction when Amos Tversky and Daniel Kahneman proposed that investors often base decisions on subjective reference points rather than objectively choosing the optimal option. A year later, Richard Thaler introduced the concept of mental accounting, suggesting that people perceive their money differently based on its intended purpose, such as for retirement or a college fund. Over time, their pioneering work laid the foundation for the exploration of cognitive psychology and behavioral biases in finance, playing a central role in the development of the field of behavioral finance.