Final ThoughtsMany of the papers in this volume were presented at the semiannual meet-
ings at the National Bureau of Economics research that I have been organiz-
ing with Bob Shiller for many years. As I glance through the past programs
of these meetings, and compare this volume with the first one, I am struck at
how the field is becoming both more mainstream and more behavioral.
More mainstream because the questions raised by these papers have been at
the very heart of many of the debates financial economists have been having
in recent years. More behavioral because the research has moved beyond
just documenting anomalies to getting on with a constructive research
agenda.
I am optimistic, as J. B. Heaton would predict, about the future. I am op-
timistic for two reasons. First, it must be the case that building models with
agents that more closely resemble actual people has to be the right way,
long term, of increasing the explanatory power of economics. The only ex-
cuse for doing otherwise is the bounded rationality of the investigator (fully
rational models are easier to play with). But, this brings me to my second
reason for optimism: some of the very best young minds in financial eco-
nomics have taken up this subject. Many of the authors represented in this
book were just out of graduate school when they wrote these papers. They
are now getting tenure at the top finance and economics departments in the
world, and are training the next crop. I can’t wait to see Volume III. What
will it contain? Speculating about the new directions of a field is always
risky, but my guess (and hope) is that behavioral finance will continue to
broaden, at least in two ways. First, the range of psychological complexities
that are incorporated will be extended beyond the judgment and decision-
making field. Issues such as emotion are surely important in understanding
how markets work. Second, the emphasis on asset pricing (and mostly eq-
uity pricing) is likely to be diminished as researchers study other security
markets using behavioral tools. Young scholars should not get the impres-
sion that the work is done. It has just started.
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