Investment analysis is an interesting field that combines psychology, economics, and mathematics.
In order to better understand how people think about money, you can read some of the best books on behavioral finance. Here are eight great books on how we behave when it comes to investing our money:
1. Thinking, Fast and Slow
Kahneman’s book is a best-seller and it’s easy to see why. It’s an essential read for anyone who wants to understand what behavioral economics is all about.
In it, Kahneman shares his insights into the way our brain works when we make decisions—and how we can use that knowledge to make better financial decisions.
2. Extraordinary Popular Delusions and the Madness of Crowds
Extraordinary Popular Delusions and the Madness of Crowds was written by Charles MacKay in 1841.
The book is a classic that has been read by many investors over time and is considered to be one of the best books on behavioral finance and investment analysis.
It looks at how market bubbles are formed, how they grow, how they burst, and the psychology behind investing during these times.
3. The Black Swan: The Impact of the Highly Improbable
The Black Swan: The Impact of the Highly Improbable, written by Nassim Nicholas Taleb, was published in 2007. It is a bestseller and focuses on events that are hard to predict.
The author makes several interesting points about the impact of these events, such as their frequency and how they affect our understanding of probability.
4. Irrational Exuberance
Irrational Exuberance by Robert Shiller is a must-read for any investor.
It’s a history of the stock market bubble in the 1990s and 2000s, but it also contains many important lessons for today’s markets.
In his Nobel Prize lecture, Shiller said that Irrational Exuberance was not intended to be predictive, but rather to illustrate how behavioral economics can explain financial bubbles and crashes.
The book was published in 2000, just before the dotcom crash; as we all know, this crash was followed by another one—the housing bust of 2008—which prompted Shiller to add an update with additional research on housing prices and credit crunch analysis.
5. The Behavior Gap
The Behavior Gap is a book about how people make mistakes with money, and how to avoid those mistakes.
The author, Carl Richards, uses his background as an artist to illustrate concepts in the book and help make them easier to understand.
Richards emphasizes that we all have a “behavior gap” between what our behavior tells us we should do and what we actually do. In order to close this gap, you need to not only understand your emotions but also recognize your cognitive biases—the mental shortcuts that influence your decision-making without you even realizing it.
Once you recognize these biases, you can take steps toward improving your financial decisions by acting based on facts instead of emotional reactions or knee-jerk reactions based on false assumptions.
6. Nudge: Improving Decisions About Health, Wealth, and Happiness
If you’re looking for an introduction to behavioral economics and its implications for investing, then Nudge: Improving Decisions About Health, Wealth, and Happiness is a great place to start.
The author is Richard Thaler, a professor of Behavioral Science and Economics at the University of Chicago Booth School of Business and co-author of the seminal study on self-control (and related failures) called “Toward a Positive Theory of Consumer Choice.”
Nudge was originally published in 2008 as part of Thaler’s effort to popularize his research into behavioral economics.
It has since become one of the best-selling books in history with over 2 million copies sold worldwide across 30 languages!
7. The Art of Thinking Clearly
The Art of Thinking Clearly by Rolf Dobelli is a more recent book on behavioral finance and investment analysis.
It’s also less academic than the others on this list, which makes it an easier read.
This book is about how to think clearly and make better decisions in all parts of your life. The author spends most of the book talking about cognitive biases and logical fallacies that can lead us astray when we’re trying to make decisions about investing, as well as other areas like politics, business, health care, and technology.
It’s a great introductory material for those who want to dive into the topic but don’t have any background knowledge yet!
8. Misbehaving: The Making of Behavioral Economics
This book is a great introduction to behavioral economics.
It explains the origins of behavioral economics, how it developed and evolved over time, and how it’s used today.
Behavioral economics seeks to explain why we make irrational decisions—and why this matters in finance.
The book walks you through several examples of behavioral finance in action: for example, people are more likely to buy certain products when they’re on sale than if they were not discounted; people tend not to be fully aware of what their insurance policy covers or what kind of damage their house might sustain from natural disasters like floods or earthquakes; and investors can be overly optimistic about their returns (hubristic bias).
We hope you enjoyed this list of the best books about behavioral finance and investment analysis. If you want to learn more about the psychology behind these concepts, we recommend reading these books first!