Rawley Z. Heimer
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Research › Behavioral finance and beliefs

Behavioral finance and beliefs

Why people’s financial choices depart from what standard models predict: biased beliefs about risk and longevity, plans that change once outcomes arrive, social influence among investors, and how generative AI may change financial decisions.

Related terms: disposition effect, loss chasing, dynamic inconsistency, overconfidence, subjective beliefs, social transmission, commitment devices, generative AI.

Published papers

  1. Dynamic Inconsistency in Risky Choice: Evidence from the Lab and Field

    With Zwetelina Iliewa, Alex Imas, and Martin Weber. American Economic Review.

    People plan to keep taking risk after gains and stop after losses, but in practice they cash out gains early and chase losses.

  2. Biased by Choice: How Financial Constraints Can Reduce Financial Mistakes

    With Alex Imas. Review of Financial Studies.

    Limits on borrowing can make investors better off by curbing their behavioral biases.

  3. YOLO: Mortality Beliefs and Household Finance Puzzles

    With Kristian Ove R. Myrseth and Raphael S. Schoenle. Journal of Finance.

    Young people underestimate their chances of survival and older people overestimate theirs, which helps explain under-saving and slow retirement drawdown.

  4. Peer Pressure: Social Interaction and the Disposition Effect

    Review of Financial Studies.

    Gaining access to a social trading network nearly doubles a trader’s tendency to sell winners and hold on to losers.

  5. Financial Decision Making, at the Dawn of AI

    Oxford Research Encyclopedia of Economics and Finance, forthcoming.

    Reviews why people’s saving, investing, and borrowing choices depart from what financial economics prescribes, and how generative AI might change them.

  6. Subjective Beliefs, Saving, and Spending for Retirement

    Chapter in Retirement Saving, Investment, and Spending: New Lessons from Behavioral Research.

    Reviews how beliefs about the future, especially about one’s own survival, change the predictions of standard models of retirement saving and spending.

  7. Friends Do Let Friends Buy Stocks Actively

    Journal of Economic Behavior and Organization.

    Social interaction is more common among active traders than among passive investors.

  8. Facebook Finance: How Social Interaction Propagates Active Investing

    With David Simon. Federal Reserve Bank of Cleveland Working Paper 15-22.

    Active trading strategies spread through social networks of retail traders, even though the network reveals how rarely they succeed.

Guides and policy writing

  1. Are People Overconfident about Avoiding COVID-19?

    With Haoyang Liu and Xiaohan Zhang. Liberty Street Economics, Federal Reserve Bank of New York.

    People expect their own exposure to COVID-19 to be well below what they expect for the general public.

Other research topics