Behavioral Finance and Entrepreneurial Finance: A Short Note

Abstract

Traditional finance (and economic) theory squarely stands on the notion of "rational man" -- a man who is much different from the "men" discussed in relative details in Jensen and Meckling's 1998 writing: "The Nature of Man". The rational construct assumes that individuals -- both investors and managers -- are capable of understanding vastly complex puzzles and conduct endless instantaneous optimizations. The growing body of Behavioral Finance literature continues to address the key issues very much dear to the traditionalists, such as the market efficiency arguments; however, the evolving field's underlying theories, borrowed mainly from the discipline of psychology, can certainly help people better understand the unresolved issues that they face in their own area of entrepreneurial finance.