Hersh Shefrin holds the Mario Belotti Chair in the Department of Finance at Santa Clara University's Leavey School of Business. Professor Shefrin is a pioneer in behavioral finance. He has published widely in the area and writes for both academics and practitioners. Professor Shefrin regularly teaches behavioral finance to undergraduates and graduates. He often speaks on the subject to portfolio managers, security analysts, risk managers, and financial planners both in the U.S. and abroad. In addition, he is frequently interviewed by the media on financial matters, writes a regular blog for Forbes, occasional blogs for the Huffington Post and Vox, and can be followed on Twitter at @HershShefrin.
Education
Professor Shefrin completed his PhD at the London School of Economics in the economics of uncertainty; he earned a Master of Mathematics from the University of Waterloo and a BS (Honors) in economics and mathematics from the University of Manitoba.
Early Scholarship
In the 1970s and 1980s Professor Shefrin’s co-authored papers in behavioral economics with 2017 Nobel laureate Richard Thaler were the first to propose a “two-self” or “two-system” psychological and neurological based theory of self-control. The two-system approach was popularized by Nobel laureate Daniel Kahneman, who related the two systems respectively to thinking, fast and slow. During the 2017 presentation ceremony, the Nobel prize committee emphasized the importance of the two-self approach, connecting it to the economic foundations laid by Adam Smith.
In 1984, an article on dividends by Professor Shefrin and Meir Statman applied the two-system framework to finance. Their article was the first treatment of behavioral finance by modern financial economists. In 1984, Professors Shefrin and Statman were invited to organize the first session in behavioral finance at the annual meeting of the American Finance Association. During that session, which Professor Shefrin chaired, Professor Statman presented their joint work on “the disposition effect.” The disposition effect is the tendency to sell winning stocks too early and ride losing stocks too long, and is the most studied phenomenon in the literature on individual investor behavior. This work was formally published by the Journal of Finance in 1985.
Recognition
In 2001 CFO Magazine listed Professor Shefrin among the “Academic Stars of Finance.” A 2003 article appearing in The American Economic Review, by Pierre-Andre Chiappori and Steven Levitt, included Professor Shefrin among the top 15 theorists to have influenced empirical work in microeconomics. In 2006, Professor Shefrin was awarded an honorary doctorate from the University of Oulu in Finland. Between 2007 and 2012, he was a visiting guest professor at Central South University in Changsha, China. Since 2019, Professor Shefrin has been a vice president of the Herbert Simon Society.
Professor Shefrin received the IMCA 2008 Journalism Award from the Investment Management Consultants’ Association. Along with colleague Meir Statman, he received a Graham and Dodd award in 1994 and a 2000 William Sharpe Award for the best paper published in the Journal of Finance and Quantitative Analysis. In 2014, his work was profiled by BBC-TV. Two of his papers in the journal European Financial Management received Readers’ Choice Best Paper awards, one in 2015 and another in 2018 (co-authored with Ye Cai). Another of his papers won an award for Outstanding Paper in the 2021 Emerald Literati Awards, for an article he published in the journal Review of Behavioural Finance. In 2019, he received two Lifetime Achievement Awards, one from his alma mater, the University of Manitoba, and another from Marquis Who’s Who (the Albert Nelson Marquis Lifetime Achievement Award).
Journal Publications
Professor Shefrin's scholarly articles have appeared in the Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies, the Journal of Financial and Quantitative Analysis, Financial Management, the Financial Analysts Journal, the Journal of Investment Management, the Journal of Investment Consulting, the Journal of Portfolio Management, Quarterly Journal of Finance, Journal of Political Economy, Review of Economic Studies, Journal of Economic Theory, Economic Inquiry, Economica, Journal of Econometrics, Discrete Mathematics, Quarterly Journal of Economics, the International Economic Review, European Financial Management, Review of Behavioural Finance, and Frontiers of Psychology.
Applying Behavioral Concepts
Professor Shefrin serves on mutual fund boards and works with financial firms to provide tools households can use to improve financial literacy and manage household spending and borrowing.
On his Forbes blog, Professor Shefrin describes how behavioral insights apply to current events. His posts are available at https://www.forbes.com/sites/hershshefrin/?sh=34b8fb056033. One theme that runs through most of his posts is how psychological propensities lead people to underestimate risks. The range of issues he discusses is wide and includes climate change, bank runs, inflation, cryptocurrency markets, investor behavior, stock price mis-valuation, regulation, financial fragility, AI, cybersecurity, Covid, airline safety, and the Nobel peace prize. Some posts have proven to be especially prescient in identifying high risks. Examples include the failure of countries to live up to their pledges from the Paris Climate Agreement of 2015, the severity of the 2020 Covid outbreak in the U.S., the inflation surge during 2022 and 2023, as well as the impact of sentiment on markets (such as for equities and crypto assets) and bank runs (which resulted in the collapse of several high profile banks).
Books
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In 2023, Professor Shefrin published the first book applying the behavioral approach to global warming. The book explains why the interplay between psychology and politics, not economic cost-benefit analysis, has been the key driver of real-world climate policy. The consequences are unsettling. In an interview with Santa Clara University, Professor Shefrin discusses the implications of psychological climate issues for the future. |
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In 2018, McGraw-Hill published the second edition of Professor Shefrin’s textbook Behavioral Corporate Finance. BCF is the first book to analyze the impact of behavioral phenomena on corporate finance. BCF can be used flexibly, either as the main textbook in courses on behavioral corporate finance and behavioral finance, or as a supplement in regular MBA level corporate finance classes. There are two notable features about the second edition of BCF. The first feature is that it updates all the cases from the first edition, thereby demonstrating the long term impact of psychological phenomena. The second feature pertains to a series of thematic boxes that appear within the text which describe corporate nudges. |
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In 2016, Palgrave Macmillan published Professor Shefrin's book Behavioral Risk Management. This book argues that the most important risk management disasters in the preceding fifteen years all have psychological pitfalls at their root. Examples abound: humans’ inadequate response to climate change, the global financial crisis, the nuclear meltdown at Fukushima Daiichi in Japan which led that country to close down all of its nuclear power plants for several years, the BP Deepwater Horizon disaster in the Gulf of Mexico, and the WHO's late response to the Ebola epidemic that erupted in 2014. Collectively, the examples in the book illustrate a series of do's and don'ts for addressing psychological issues in risk management. Updates to the published version can be found at this link. |
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In 2016, Oxford University Press also published a volume dedicated to the financial crisis. Together with Tassos Malliaris and Leslie Shaw, Professor Shefrin served as volume editor. The book is titled The Global Financial Crisis and Its Aftermath, and features a multidisciplinary perspective which blends economics, psychology, and ethics. |
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In 2010, Professor Shefrin published a monograph entitled Behavioralizing Finance, http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1597934. Behavioralizing Finance surveys the main contributions to behavioral finance, and explores both the strengths and weaknesses of the behavioral approach. In doing so, he suggests how behavioral finance might evolve in the future both to exploit its strengths and address its weaknesses. |
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In 2008, Elsevier published the second edition of Professor Shefrin’s book A Behavioral Approach to Asset Pricing. BAAP is the first systematic analysis of how behavioral assumptions impact the pricing kernel that lies at the heart of modern asset pricing theory. The book provides a unified behavioral treatment of the pricing of equities, options, fixed income securities, and mean-variance portfolios. |
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In 2008, McGraw-Hill published Professor Shefrin’s book Ending the Management Illusion: How to Drive Business Results Using the Principles of Behavioral Finance. This book explains the behavioral traps and biases which typically ensnare managers, and describes how companies can develop a culture of debiasing. Notably, companies identified in the book as having strong cultures have generally performed well since the book was published, while companies identified as having weak cultures have generally performed poorly, sometimes with drastic consequences. The most prominent examples in the book involve BP, Southwest Airlines, Ford, Citibank, and Nortel Networks. The book also emphasizes key psychological biases which have impeded humans’ response to the threat posed by anthropogenic global warming. |
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In 2001, Professor Shefrin edited a three-volume collection, entitled Behavioral Finance, published by Edward Elgar. In addition to seminal papers in this rapidly developing field, these volumes contain some of the pioneering works in psychology, upon which behavioral finance is based. The University of Oulu, Finland, noted the influence of this collection in awarding Professor Shefrin an Honorary Doctorate in 2006. |
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In 1999, Harvard Business School Press published Professor Shefrin's book, Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of Investing. BG&F is the first comprehensive treatment of behavioral finance written specifically for practitioners. In 2009, J.P Morgan Chase recognized BG&F as one of the top ten books published since 2000. In 2007, Oxford University Press, who assumed publication of the book, released an edition with a revised preface to reflect recent events and developments. The book is used around the world as a textbook in courses in behavioral finance, and has been part of the CFA Institute curriculum source material. Supplementary instructional materials for using the book can be downloaded from the right side of this page under instructional materials |
December 2023
