Which heuristics can aid financial-decision-making?

© 2015 Elsevier Inc. We evaluate the contribution of Nobel Prize-winner Daniel Kahneman, often in association with his late co-author Amos Tversky, to the development of our understanding of financial decision-making and the evolution of behavioural finance as a school of thought within Finance. Whilst a general evaluation of the work of Kahneman would be a massive task, we constrain ourselves to a more narrow discussion of his vision of financial-decision making compared to a possible alternative advanced by Gerd Gigerenzer along with numerous co-authors. Both Kahneman and Gigerenzer agree on the centrality of heuristics in decision making. However, for Kahneman heuristics often appear as a fall back when the standard von-Neumann-Morgenstern axioms of rational decision-making do not describe investors' choices. In contrast, for Gigerenzer heuristics are simply a more effective way of evaluating choices in the rich and changing decision making environment investors must face. Gigerenzer challenges Kahneman to move beyond substantiating the presence of heuristics towards a more tangible, testable, description of their use and disposal within the ever changing decision-making environment financial agents inhabit. Here we see the emphasis placed by Gigerenzer on how context and cognition interact to form new schemata for fast and frugal reasoning as offering a productive vein of new research. We illustrate how the interaction between cognition and context already characterises much empirical research and it appears the fast and frugal reasoning perspective of Gigerenzer can provide a framework to enhance our understanding of how financial decisions are made

Ethical judgment and radical business changes: the role of entrepreneurial perspicacity

This study examines the implications of practical reason for entrepreneurial activities. Our study is based on Thomas Aquinas’ interpretation of such virtue, with a particular focus on the partition of practical reason in potential parts such as synesis, or common sense, and gnome, or perspicacity. Since entrepreneurial acts and actions deal with extremely uncertain situations, we argue that only this perspicacity, as the ability of correctly judging in exceptional cases, has the power to find wisdom under such blurred conditions. Perspicacity frees entrepreneurs from their cognitive schemata rendering them able to be truly entrepreneurial. Based on this vision and thanks to a semantic analysis of the meaning of the Greek word gnome, we construct an interpretative model for entrepreneurial judgment composed of three dimensions, specifically, knowledge-cognitive, external-affective and personal-reflective. The model highlights how a ‘successful’ entrepreneurial judgment is also such from a holistic point of view