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Robert Powell: How ‘normal people’ can make better money decisions

In the introduction to his book, “Finance for Normal People”, Meir Statman, a professor of finance at Santa Clara University, describes the second generation of behavioral finance.

The first generation, he wrote, largely accepted standard finance’s notion of people’s wants as “rational” wants — restricted to the utilitarian benefits of high returns and low risk. That first generation commonly described people as “irrational,” succumbing to cognitive and emotional errors and misled on their way to their rational wants.

This second generation, however, describes people as “normal”.

“It begins by acknowledging the full range of people’s normal wants — hope for riches and freedom from the fear of poverty, nurturing our children and families, being true to our values, gaining high social status, playing games and winning, and more,” he wrote.

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