Financial psychology

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Financial psychology is the science of the experience and behavior of people when dealing with money or funds invested or borrowed close to liquidity . This includes in particular the perception and processing of information about events on the money markets and the sequence and influencing factors of the decision-making processes. A special focus is also placed on behavioral finance (also in German; rarely translated as qualitative financial market analysis). In doing so, the (market) psychological influences on the decisions of investors and thus on price developments are to be explored. The financial psychology is one of the business psychological subregions.

General

The field of work of this relatively young sub-discipline of psychology also includes the behavior of people in change processes with financial effects and the emotional experience of situations in which financial decisions play a role. The studies in financial psychology so far mostly refer to the micro level, i.e. to the individual economic subject. Characteristic for this area of ​​psychology is the historical as well as current, predominantly interdisciplinary approach to the topic. Thematic and methodological overlaps exist primarily with the field of market psychology .

history

The origin of financial psychology

In order to describe the origin of financial psychology, the origin and above all the function of money should first be in focus. Money should be understood as an equivalent value and not the pure form of a coin or banknote.

"... money as a primordial phenomenon of human coexistence is not of economic origin and therefore cannot be explained or defined with the terms and categories of economics alone."

Money had its origins in the field of ethnic psychology thousands of years ago. Starting as hoard money, money initially existed in the form of magical-mystical objects, for example a ring, in the form of advertising jewelry around a woman or a dignity and rank jewelry of a man. From this developed the swank money, so that money was used as a means of power and status. The next form is called payment money . The form of money was tied to a measurable weight or to a specific precious metal and thus defined its value. Money in the economic context went through several eras. Money was now used in the form of coins . The final development of money is the removal of the substantial link to the purely fictitious value, so that money as we know it today was created as symbol money . There is disagreement about the exact development process of money, but the different forms of money still coexist today. Financial psychology is today a. a. with the symbolic meaning of money and the effects on living together.

Financial psychology as an empirical science

In economics, there was already a close association of psychology and economics in the period of classical economics . The theoretical basics presuppose individual and highly subjective action. Adam Smith (1723-1790) already described in his work The Theory of Moral Sentiments in 1759 the psychological importance of, for example, fairness and willpower in the decision-making of an individual. However, this approach was overturned by the neoclassical theory , which describes a completely rational person in his decisions through the homo oeconomicus . He only acts according to monetary principles and is not guided by feelings or emotions.

With the emergence of the stock exchanges at the time of high industrialization (around the year 1890), people began to deal intensively with the psychological effects on decision-making on the stock exchange . For example, the French doctor Gustave Le Bon dealt with this topic and published his work Psychology of the Masses in 1895 . In his work La Psychologie Economique from 1902, the French lawyer Gabriel Tarde came to the conclusion that it is only possible to understand developments on the stock market by examining the psychological effects of good and bad news on investors. In 1910, the German economist Willi Prion describes in pricing on the stock exchange that in addition to economic motives, personal motives in particular play a decisive role for large and small investors.

After separating psychological approaches from economics by neoclassical theory , John Maynard Keynes showed in his 1933 Beauty Contest experiment that decision-making was not based on our personal endeavors, but rather on the ideal of the masses expected of us. Some scientists consider this result to be the birth of behavioral economics (also: behavioral finance ). The so-called Keynesian Revolution of 1936, triggered by Keynes' General Theory of Employment, Interest and Money , is a contradiction to the model of homo oeconomicus , which, according to Keynes, corresponds to a fictitious nature. For Keynes demand-oriented economic policy , human expectations and their associated associations are indispensable when it comes to future-oriented forecasts.

The emergence of the science of behavioral economics and general financial psychology in Germany did not take place until later. Günter Schmölders (born 1903 in Berlin, died 1991 in Munich) could be called the founding father of behavioral economics and financial psychology in Germany. In his work he mainly dealt with finance and politics , money economy , social economics and tax psychology . He began his work before the Second World War, but like many other social and economic scientists had to interrupt his work during this time. In 1947 Günter Schmölders resumed his teaching activities in Cologne and three years later began to research at the financial research institute at the University of Cologne . He was head of the institute from 1950 to 1978. With the establishment of the Research Center for Empirical Social Economics in 1958, he established behavioral economics as an empirical science in Germany for the first time . From 1951 to 1952 and 1960 to 1961 he was dean of the Faculty of Economics and Social Sciences at the University of Cologne, where he assumed the position of rector from 1965 to 1966.

His work The Irrational in Public Finance. Problems of Financial Psychology , published in 1960, shows the beginning of this empirical science . With his publications he aroused the public's interest in financial psychological topics for the first time. From the terms he established such as tax morality, monetary and financial psychology and his empirical research, financial psychology has been recognized as a branch of psychology in Germany . In his opinion, there must be a clear distinction between financial psychology and money psychology . Financial psychology must therefore concentrate exclusively on examining the reactions of citizens to financial policy decisions.

The international behavioral finance movement and the associated general topic of financial psychology experienced a hype due to the Prospect Theory in 1979 by Daniel Kahneman and Amos Tversky . The work Judgment Under Uncertainty: Heuristics and Biases of Kahneman, Tversky and Paul Slovic of 1982 lay probably the most important basis for the behavioral financial theory (Engl. Behavioral Finance ) as a sub-field of behavioral economics (Engl. Behavioral Economics ), as we today know.

Sub-areas

The most important areas of financial psychology are:

literature

Web links

Individual evidence

  1. ^ [1] K. Moser: Wirtschaftspsychologie on Google Books, accessed March 23, 2019
  2. ↑ Gerhard Merk (University of Siegen): Financial Psychology Ad-hoc.news.de, accessed November 30, 2008
  3. ↑ a b Monika Müller: Financial coaching for entrepreneurs: Financial psychology: dealing successfully with money and risk. Berlin Heidelberg 2013, p. 55
  4. ↑ Günter Schmölders: Psychology of Money. Hamburg 1966, p. 28
  5. ↑ Ashraf, Nava, Colin F. Camerer, George Loewenstein - Adam Smith, Behavioral Economist. Journal of Economic Perspectives. 2005 19 (3): pp. 131-145
  6. ↑ Duden Economy from A to Z: Basic knowledge for school and study, work and everyday life. 5th edition Mannheim: Bibliographisches Institut 2013. Licensed edition Bonn: Federal Agency for Civic Education 2013.
  7. ↑ Christian E. Elger, Friedhelm Schwarz: Neurofinance: How trust, fear and greed make decisions. Munich 2009, p. 24
  8. ^ John Maynard Keynes: The General Theory of Employment, Interest and Money. London 1936, p. 156
  9. ↑ Günter Schmölder's Research Center for Empirical Social Economics, accessed on April 2, 2014
  10. ^ Klaus Moser: Business Psychology. Heidelberg 2007, p. 194
  11. ↑ Hersh Shefrin : market success with behavioral finance. Stuttgart 2000, pp. 8-9.
  12. ↑ Werner Gross : Financial Psychology: Between Miracle Drugs and "Risk Profiling" . In: ders .: Successfully self-employed: Founding and running a psychological practice . 2nd, corrected edition. Springer, Berlin / Heidelberg 2015, ISBN 978-3-662-46512-7 , chap. 3.2.1, pp. 102-104, here p. 103.