The Role of Personality in Financial Decisions and Financial Crises

In this chapter, we consider the role of personality traits in shaping the behavior of financial actors. We consider the promise of using personality to predict financial behavior. Personality is perhaps the ultimate “exogenous” predictive variable—stable throughout the lifetime of individuals and substantially heritable. At the same time, personality traits have demonstrated predictive power for agent actions. However, there are a number of inherent obstacles to incorporating personality into the standard economic model of financial decision making. We suggest some approaches to overcoming these obstacles.