047: Victor Ricciardi on The Psychology of Financial Planning and Investing
Victor Ricciardi is Finance Professor at Goucher College, Baltimore, Maryland where he teaches courses in personal financial planning, corporate finance, investments, behavioral finance, and the psychology of money.
Victor is the Coordinator of Behavioral & Experimental Research for the Social Science Research Network also known as SSRN.
Victor is the current Editor for seven SSRN eJournals including Behavioral & Experimental Finance, History of Finance, and Behavioral & Experimental Economics.
He received his PhD from Golden Gate University and his MBA from St. John’s University.
Victor’s current book Investor Behavior: The Psychology of Financial Planning and Investing with co-editor Kent Baker is now available and has 30 chapters on emerging research in behavioral finance.
In this episode, you will learn:
- the difference between Behavioral Economics and Behavioral Finance.
- the rational approach to investing and whether it exists.
- what bounded rationality really means.
- if companies help you make decisions for their own personal benefit.
- how framing can be a powerful tool to help customers make decisions.
- the importance of financial literacy at different stages of your life.
- the similarities between behavioral economics and marketing.
- the future of Behavioral Economics and Behavioral Finance.
- how your mood, good or bad, can influence your buying behaviour and increase risk-taking.
- about the importance of studying the subconscious mind in finance or neurofinance.
- why people generally do not take losses, known as loss aversion.
- why Victor disagreed with the traditional views of economics and decided to study behavioral finance.
- how and why some governments are using behavioural finance and economics techniques to nudge us to make better financial decisions in our lives.
- how status quo bias makes it harder for employees to opt out of an automatically enrolled savings retirement plan.
- how mounting student debt and high youth unemployment in the US could make it difficult to service pensions leading to a pension ‘ponzi’ scheme or a crisis.
- why Victor Ricciardi believes that there should have been a law designed to make retirement planning easier for the employee.
- what you should do when investing so as to manage bull and bear market cycles.
In this interview, Victor mentions and discusses: behavioral Economics, Behavioral Finance, rational, bounded rationality, heuristics, framing, annuity puzzle, investment, consumption, self-control bias, nudging, consumer behavior, mutual returns, savings, investments, neurofinance, risk tolerance, over-confidence, loss aversion, nudging, status quo bias, retirement planning and wage inflation.
In this interview, Victor mentions and discusses: Richard Peterson, Douglas Rice, Daniel Kahnemann, Amos Tversky, Robert Olson, Richard Thaler and Hersh Shefrin.
William Sharpe, Harry Markovicz, Terence Odean, Robert Olsen, Dan Ariely, Mair Stockman, Hersch Shefrin and John Nofsinger.
Quotes by Victor Ricciardi in Episode 047 of the Economic Rockstar Podcast:
Behavioural Finance is the notion of integrating psychology with finance. So you’re looking at some major themes where people are not only rational but they make decisions based on emotions. – Victor Ricciardi
Risk tolerance is the maximum amount of risk a person is willing to take in their overall portfolio or risky asset. Typically, people are either very conservative risk-takers, they’re average or they’re very aggressive. The component of risk tolerance that’s related to it is known as ‘Risk Perception’, in which our feelings and emotions will increase or have an impact on our overall risk tolerance. – Victor Ricciardi
Meet with a financial planner and get a financial plan done. In terms of investing, try to understand what type of investor you are and come with an asset allocation that you are comfortable with. Rebalance your portfolio on a year basis which allows you to stay within your risk tolerance. – Victor Ricciardi
- Investor Behavior: The Psychology of Financial Planning and Investing by Victor Ricciardi and Kent Baker
- The Psychology of Investing by Jon Nofsinger
- Irrationally Yours by Dan Ariely
- Predictably Irrational by Dan Ariely
- Misbehaving by Richard Thaler