Debunking Homo Economicus
Most investors are biased decision-makers, which can lead to irrational macroeconomic outcomes.
This is the third the Behavioral Finance and Macroeconomics series. We will explore the effect behavior has on markets and the economy as a whole--and how advisors who understand this relationship can work more effectively with their clients. (Access previous articles here.)
We will discuss the shortcomings of a concept in traditional economics called Homo Economicus or Rational Economic Man (REM). By understanding these shortcomings, you will be better equipped to speak with clients about irrational macroeconomic outcomes, such as bubbles, recessions, and crashes (which will be the subject of future articles).