REGULATORY LAW AND BEHAVIORAL FINANCE

This book aims to incorporate insights from behavioral finance and behavioral economics into securities regulation in the EU. After a brief summary of the history and principles of behavioral finance, chapter one emphasizes on the most common investment mistakes, indicating the irrationality of many decisions in the financial markets. In search of a way to improve investors’ protection, chapter two presents the field of behavioral law and economics, highlighting Thaler’s and Sunstein’s “nudge theory” as the best answer to the problem, despite the respective anti-paternalistic objections. In chapter three, a review of the current legal framework unveils certain insufficiencies, since the quantity of information that is provided to investors, especially retail investors, seems to be hardly processed by them. The book ends with proposals for a more effective protection of investors’ interests, including among others better categorization, quality of information, default rules, as well as financial education.