A Behavioral Science Approach to Financial Research Author(s): Gail Farrelly Source: Financial Management, Vol. 9, No.

3 (Autumn, 1980), pp. 15-22 Published by: Wiley on behalf of the Financial Management Association International Stable URL: http://www.jstor.org/stable/3664888 . Accessed: 14/02/2014 20:24
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A
to

Behavioral Financial

Science
Research

Approach

Gail Farrelly
at TheGeorge Theauthoris an AdjunctInstructor in Accounting where is also a doctoral she candidate WashingtonUniversity, in accountingandfinance. She acknowledgeswith thanks the commentsand suggestionsof J. Minor Sachlis and of two anonymousreferees.

Introduction
In The Conductof Inquiry,Kaplanexpoundswhat he refersto as the law of the instrument: "Givea small he enboy a hammer,and he will find that everything countersneeds pounding"[14, p. 28]. Mathematical modeling of a very specific nature has becomejust such an instrumentin the field of finance. It seems that almost all research into the behavior of the marketcentersaroundthe numerical effectsof investment and financialdecisions.This heavy relianceon one methodologyneeds to be questioned. It may be that the abilities and interests of the researchers and not the natureof the subjectmatter have dictatedmethodologyin financialresearch.Today most financial researchersare well schooled in andhavereadyaccessto comquantitative techniques the of data;in this facilities for puter rapidprocessing the on light, importanceplaced modelingthe market is understandable. At the same time, researchers may be setting limits to what they can accomplish by emphasizingthe one methodology that is already in their discipline. safely entrenched
15

Financialresearch,with its emphasison the allocation of resources,is importantto the future of our to be limitedarbitrarily economy- far too important to one research This paperconsidersan methodology. additional methodology in finance - that of behavioral science.Traditionally financialresearchers have dealt almost exclusivelywith data that can be quantifiedin a predetermined way; in doing so, they have disregarded evidence on the psychological in financialmarkets.Such aspectsof decision-making evidence is important to the valuation process, becausethe reactionof "the market"is nothingmore than the aggregate of the reactions of individuals. Thus, it wouldseem that there are two basic ways of the learningabout the valuationprocess:quantifying reactionof the market as a whole throughthe techniques of mathematicalmodeling, and probing the decision-making processesof individuals throughthe of behavioral science. techniques Both these have serious limitations, as do all methodologies.Financialresearchers may regardthe

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limitationsof the behavioralmethodologyas insurbut it shouldbe possibleto find meaningmountable, the reactions ful patternsof behavior andto aggregate of individuals in sucha waythat marketwide valuation are more Admittedly, comprehensible. processes in financemaybe less precisethan research behavioral that based on modeling the market. This does not mean that it wouldbe less useful. As Ijiri necessarily [12] points out, the trade-offbetweenstatisticaland judgmental observations must be considered. Statistical observationsmay have advantagesover but, in orderto meet the rejudgmentalobservations; quirementsfor statistical sampling, the quality of observationsmay have to be loweredor the cost of observations increased. The use of the two methodologiesin the field of finance seems reasonable, in that each could help to make up for the limitationsof the other. The quality of observation of behavioral studiesaddedto theprecicharacteristic the market sion characteristic of studies quantifying may enhancethe usefulnessof financialresearch.

Analysis of Current Methodology in Finance

do whenthey are faced with What can researchers methodologicalproblems?It would seem that they have two options: improvethe old methodology,or developsome new ones. Currentfinancialresearchstressesthe first of these options, virtually ignoring the second. Precision appearsto be the majorcriterion,which meansthat answers to current methodological problems are sought in the developmentof more refined mathematical techniques.What is neglected is the more basic question of whether the precision of mathematics is the only suitable means for approaching researchin finance. Roll [23], Ross [24], and others question the validityof the capitalassetpricingmodel,all the while appearingto seek answersthat lie only within the realmof modelingthe marketas a whole.In financial theory,the searchis on for the successorto the capital asset pricingmodel;it seems to be assumedthat the will be some sort of a next theoreticalbreakthrough model, such as Ross's arbitragepricingmodel [24]. Such a specificationis quite restrictive. In a subtlebut unproductive way, researchers may be narrowing the field by limitingthemselvesto one conceptual scheme. The behavioral scientist, Roethlisberger [22], discussesthe abilityof a conceptual scheme to hinder as well as help investigative

progress;a conceptual scheme slants the focus of research,and this is useful because it is the human conditionnot to be able to investigateeverythingat once. In a certainsense, peoplewho use a conceptual scheme "will find what they are looking for" [22, p. it is essentialthat 533]. Accordingto Roethlisberger, one understand this is so it can be corand how why rected.It is questionable that such understanding exists in financialresearch,for it appearsthat there is not sufficient of the "slanting" featureof a recognition conceptualscheme. The problemis complicated by the fact that thereis not only one generalconceptualscheme(the scheme of mathematical modeling)whichdominatesfinancial research,but within this general scheme there is a dominant specific scheme as well, the scheme of to be efficient.Obviously, modelinga marketassumed most financialresearchers recognizethe usefulnessof these conceptualschemes, but they do not seem to - their ability recognizetheir negativeconsequences to restrictthoughtas well as guideit and theirpower to fosterprejudgment as they structure judgment.For example, it is interestingto note that Jensen [13] of the efarguesthe necessityof reviewing acceptance ficient market theory and methodological procedures.At the same time, he states that the resultof the review"will not be an abandonment of the 'efficiency' concept, nor of asset pricingmodels" [13, p. of the findings of future 100]. Such a prejudgment studiesis not uniquein currentfinancialresearch. At times, it seems as if financialresearchersare searching only for evidence that will confirm the theory of efficient markets;evidencewhich does not immediatelyconfirm is analyzed,adjusted,and explaineduntil it does so. If, as Roethlisberger points tend to "find what they are looking out, researchers for" [22, p. 533], the whole picture may not be revealed by evidence supportingmarket efficiency. Perhaps more experiments should be specifically to searchfor evidenceof marketinefficiency, designed cenfor, as Bernard[4] pointedout in the nineteenth tury, investigationshould be pushedto the point of counterproof. A model is a powerfulinstrument to be used in an attemptto explainreality.Models can be used to examinethe behaviorof an individual, a smallgroup,or a large group (the "market," for example). To criticizeresearchers for placingtoo great an emphasis on modelingthe marketas a whole(and,in particular, for using one specific model - namely, that of efficientmarkets)andto suggestthattheremaybe other instrumentsfor use in financialresearchin no way

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detractsfrom the generalpowerof models;in fact, it may evenaddto that powerby offeringnew inputsfor model buildingand new ways of model testing. The issue is that, in terms of practicalusefulness,the outbasedon traditional modelingdoes not put of research seem to be impressiveenough to warrantexclusive concentration on this one type of research methodology.Horizons must be extended. workon the assumption Most financialresearchers that analyzing the behaviorof individualsis not a fruitful area of study, and they work to disengage Insteadof considerations. themselvesfrombehavioral behavior of the on individuals,they concentrating choose to concentrateon the behaviorof a groupthat is, on the marketas a whole - as it manifests itself in numbers.Whenappliedpsychologywas in its early stages, the attemptof financeto free itself from dependence on psychological principles was understandable.Now the situation is quite different. There have been many advancesin the field of psyin personality chology- for example,improvements and in for the testing techniques exploring dimensions of human behavior. More importantly, through statisticalsamplingand computersciencetechnology, it is now possibleto aggregatepsychological data in a in find of order to useful variety ways generalizations. Today, therefore,the rejectionof a psychological approachto the studyof financeseemshardlydefensible.

Application of Behavioral Science to Finance

Such applicationseems evidentwhen financialand investment decision-makingis seen as a circular process in which the last step is linked to the first. These steps are as follows: 1. Firm makes financialand investmentdecisions; 2. Decisionsare perceivedby the market; 3. Marketreactsto decisions(by way of stockprice effect); 4. Firm perceivesmarket'sreaction;and 5. Firm reactsto market'sreactionby way of new financingand investmentdecisions. At present,most financialresearchvirtuallyexcludes is on the reaction,not on steps 2 and 4. Concentration the perceptualframework withinwhichthat reaction took place. It may be useful to put some emphasis on the withinwhichstockholders and perceptualframework financialmanagersmake decisions. In 1951, Burrell this approach in theJournalof Finance, [5] advocated but his contribution was overshadowed by the

articleby Markowitz[19]published just revolutionary a few monthslater.PerhapsBurrell's ideasareworthy of a secondlook; it is now almost 30 yearsanduntold thousands of research hourslater.For uponthousands the most part we have taken the route of an entirely differentmethodology, and we still have a lot to learn about how securitymarketswork. In financialmarkets,decisionsto act are verymuch tied up with predicting how otherswill act or react.A financialmanageracts on the basis of a prediction of how the stock market will react in response to a specific action. An investor acts on the basis of a of how the economy,the stock market,and prediction certain firms and industrieswill act in the future. the processby to investigate Thus,it seemsreasonable which predictionsof actions and reactionsshape action patternsand the processby whichactionscreate reactions. Such investigationmight be useful in at least three ways: more 1. For predicting investorreactions.Knowing abouthow and why individuals behavedin marketsin the past may be instructivefor construction, timing, of financial and inmagnitude,and communication vestmentdecisionsto be made in the future. 2. For consideringthe generalissue of how financial marketsassist the nation in allocatingresources and fostering long-term economic stability. Specifically,these questionsappearto be relevant: a) What are the implications for the nation's economic development of a competitive market system in which the major criterion for decisionof the reactionof otherpeople? makingis a prediction in whichparticipants a forum can both By providing value and revalue investments, security markets monitor the nation's investment activities. At the in choossame time, they demandthat a participant, a of take course into consideration not only action, ing his own predictionsbut also the predictionsof other participants.Although we really do not know too muchabout this process,we confidently dependon it to direct investmentinto areas that will benefit the nation'seconomy. b) Could it be possiblethat our system, in placing emphasison the opinionof the averageperson(thatis, the market aggregate), stresses mediocrity, rather than excellencein decision-making? As Keynescommentedin 1936: "We have reachedthe third degree wherewe devoteourintelligences to anticipating what averageopinion expects the averageopinion to be" [16, p. -156].In financialmarkets,each "part"(an individual,an institution,a firm) pursuesits own selfinterest, and it is assumed that the "whole" (the

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economy)benefitsas a result. Accordingto Keynes, investorsare not concerned with making professional of superiorlong-termforecasts the probableyield of an investmentover its whole life; what rules is the
attempt to "'beat the gun' ... to outwit the crowd,

and to pass the bad, or depreciating, to the half-crown otherfellow"[16, p. 155].Perhapssuchactivitieslead to make decisionsthat, in the aggregate, participants are not at all optimal as far as the economy is concerned. c) In whatways does the systemworkto rationally foster an irrationalact? For example,if management turns down an excellent investmentopportunityin order to give the market the dividendsit demands, perhaps irrationality (the market's demand) is successfulin triggeringmore irrationality(manage- a decision ment'sdecisionto forgo the investment in of the name of made, course, rationality).Once how where takes could it be and hold, irrationality in the circular of investment and process stopped financialdecision-making? 3. For leading to improvements in the process of This would financialand investment decision-making. since seem to be an importantarea for investigation, the futureof the economyrests largelyon the collective judgment of financialand investmentdecisionmakers.Yet it is a neglectedarea, becausefinancial theories often contain the unexpressedassumption that all (or at least most) people are good processors of information.For example,the assumption that investorshave perfectinformation in efficientmarkets impliesthat investorsknowwhatto do withthatinformation. Current research seems to emphasize the speed of information processingin the marketrather than the qualityof such processing.But havingmore data does not alwayslead to betterdecisions.It may be morecrucialfor investorsto knowwhatto do with the data they haveratherthanfor themto accumulate more.

Venture into a New Methodology

Any new methodologyis subjectto criticism. In finance, traditionalistsmay tend to label the new methodology as unscientific, impractical, and unsuitedto the subjectmatterof theirdiscipline.Along these lines, skeptics might well note Sterling's [27] reminder that the basictenetof scienceis that nothing is beyonddoubt and final, includingthe methodsof science. In any event, it falls upon those who profess to defend the applicability of a differentmethodology it againstsuch charges.Along these lines, one of the best defenses and examination of a behavioral

methodology can be found in The Motivation, and Satisfactionof Workersby ZalezProductivity, and Roethlisberger nik, Christensen, [29]. Describing every aspect of their study of small work groupstheir patternsor structures, their physicaland social and the of their individual environments, personalities members- the authorsprovidea living exampleof social scientists at work in the analysis of human behavior. The authors took great pains to elucidate their study as an illustrationof the scientificmethod,and the usefulness of their work has been established beyonddoubt.Therefore,some analysisof this work, with parallelsdrawnto finance,would seem to be a good way to defend and illustrate a behavioral methodology. The Zaleznik study was aimed at data for a moreup-to-date providing bodyof theoryof and behavior. administrative Although organizational it dealt with a very small number of workers, all employed in one departmentand one company, it some of which observations, yieldedsome interesting even been have may compellingenoughto affect the actions of practicingmanagers. Even more importantly, the study yielded new hypothesesfor future studiescouldprovide testingand research.Behavioral new hypotheses for a more up-to-date valuation theory.Accordingto Fama and Miller [7], the theory of finance is concerned with how resources are allocated through time and how the existence of capital markets and firms facilitatesthis allocation areimportant determinants process.Sinceperceptions of how individuals and firms allocate resources, are worthyof study.In the Zaleznikstudy perceptions it is suggestedthat "both theory and practicein the long run requirea betterway of thinkingof how the various dimensions of human behavior are interrelated"[29, p. 4]. This remarkhas applicationin every field. In finance, behavioralstudies could play a role similarto the role of the Zaleznikstudy in management.Resultsof a studyof a smallgroup- for example, a group of investors- could take a variety of paths: - They mightbe of directinterestto the practicing manager. Lorsch [18] points out that theories of situationsare harder behaviorthat workin particular to applythanuniversal ones, but that they workmore often. We need moreresearchfindingsin financethat usefulin the sensethat they are usefulto practitioners, situations show evidenceof workingin the particular that financialmanagersnow face or mightface in the future.

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- They could be generalized. For example, Lewellen,Lease, and Schlarbaum [17], in a questionnairesurveyof 972 individual investors,usedtransaction records to provide an internal check on the validity of the survey. The authors state that the of reliabilityof their data and the representativeness their sample justified extrapolatingto the broader population of individual investors any significant behaviorpatternswhich emerged. - They could be used to generate new, more specific hypothesesfor futurebehavioralresearchor of theoretical models to the development to contribute of comments to be tested in traditional One the ways. relevant from the Zaleznik study seems particularly here:"Again and again it was not so much the question of whetheror not the particularhypothesiswas true as it was the questionof underwhat conditions the hypothesisheld" [29, p. 28]. The words "under whatconditions" deservespecialconsideration. Major in finance (on the cost of capital and on hypotheses dividendsvs. earnings retention,for example) have traditionallybeen tested in terms of keeping other conditionsconstantin orderto ascertaina cause and effect relationship betweena financing decisionand a stock price. The demand for control is understanthat dable,but at the same time it mustbe recognized such a demand may possibly be hiding relevant evidencefrom view. In the realworld,a decisionis madewithina certain context, but traditionalresearchmethods shed little it is evenmorecorrectto light on this context.Perhaps removethis conthese methods that purposefully say text from consideration.In reality, the question of whethera hypothesisregardingdividendsvs. capital as the question gains holds may not be as meaningful of under what conditions such a hypothesis would hold. Behavioralmethodsmight be very successfulin delineating some of these other conditions, which could then be subjectedto tests based on traditional mathematical modeling in an effort to generalize results.

that is, ple alwaysact at the very peak of rationality; in the decision-making process, they search out all beforeselectingthe verybest one. possiblealternatives But he pointed out that this assumptionis often at odds with the way peopleactuallybehaveand choose; man is often a satisficerand not a maximizer.In the only decision-making process,he searchesalternatives until he finds a satisfactoryone, not continuingthe process to consider every single alternativebefore selecting the one that maximizes his objectives. Simon'scontentionthat modelsbuilt on questionable behavioral assumptions may have poor predictive powersappliesto modelsin financeas well as those in
economics.

Behavioral Contributions Significant for Financial Research

sciencehas had an impacton a number Behavioral of fieldsof study.Thereis everyreasonto believethat it may have a similar impact in finance. A few behavioralareas are especiallyrelevantfor financial research: 1. The contribution for whichSimon [25] received the Nobel prize in economicsis a good example.Accordingto Simon, economicmodelsassumethat peo-

Risk-return models and the mathematics of modernportfoliotheoryportrayman as a maximizer, not a satisficer,of the risk-return tradeoff,a portrayal that needs to be questioned.Laboratoryand field studiesgearedto discovermore abouthow peopleactually behave and choose in financial markets are needed.At the very least, such studiesshouldenable us to know more about the extent to which the modelsviolate mathematical assumptions underlying actual behavior. - forexample,Herzberg 2. Behavioral researchers indicate that knowledgeof and Maslow [20] [11] the attitudes,values, and needs of workersis imporfor the actionsof tant to a managerwho is responsible these workers. Similarly, knowledgeof types of investorsthat particularfirms attractmight be helpful to financialmanagersin their attemptsto maximize marketvalue. On the financialside, Miller and Modigliani[21] claim that individualpreferencesregardingpayout ratios would not affect valuation,becauseeach corporationwould merely attract a "clientele"consistits payout ratio; one clientele ing of those preferring wouldbejust as good as anotherin termsof the valuais tantion it wouldimplyfor the firm.This argument one it admits of a "clientele the on hand, talizing effect;"yet on the otherhand,it says "don'tbotherinandpractitioners it." Financial researchers vestigating have reactedto this with a curiouscompromise: they time at but the same clientele the effect, recognize never seriously investigate it. Apparentlyfinancial managers are not as confident as Miller and couldtake place Modiglianithat clientelesubstitution withoutaffectingvaluation,for they seem to act as if there were a particularclienteleto be served. Behavioral studies may help financial managers come to a broader understanding of needs, tastes, and goals uniqueto their own characteristics,

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This understanding class of stockholders. may lead to more accuracyin prediction,enablingfirms to make better financialand investmentdecisionsdesignedto maximize the stock price. Preliminarywork in the areaof client-specified valuationmodelsby Bakerand Haslem [3] needs to be extended. 3. Psychologists have conducted a number of general studies in the areas of risk and subjective probability which are applicable to the study of finance.Risk is an elusive,subjective concept,one that cannoteasilybe handled a mathematical model.As by Fourieronce commentedabout mathematicalanalit has no marks ysis, "Its chief attributeis clearness; to expressconfusednotions"[9, p. 1]. Yet researchers in finance continue to emphasizeobjectivity,rather than subjectivity, their searchbeing confinedto "obmeasures of risk.This is unfortunate, because jective" of the conthis distinctionsets a limit to investigation cept of risk; this occurs in such a subtle way that whatis happening. researchers may not evenrecognize It is really not risk itself, but the reactionto risk, that is of interest. And this reaction arises from a perceptionwhich, while not directlyobservable,still may be subjected to scrutiny. The perceptual withinwhichinvestors framework reactto risk as part of the whole chain of financial and investment decision-making is important, because, all other thingsbeingequal, a decisionthat resultsin a perception of higherrisk for a firm shouldlead to a lower stock price. Regardingthe subjectiveside of risk, Slovic [26] points out that severalfactorsseem to influence a person'sjudgmentof the varianceof a seOne quenceof valuesaboutthe meanof that sequence. variance such factoris the mean itself, with perceived increasingas the mean decreases;a second factor influencing judgmentof varianceis greaterirregularity in a sequence.Accordingto Slovic, the stimuliin exon perceived variancehavebeensets of line periments and but he statesthat it wouldbe innumbers, lengths to determine whether these same sorts of teresting of a sequence of biaseswouldoccurwhenthe variance stock prices or earnings reports was being judged. Such studies might produceobservationsof general in addition,they interestto the financialcommunity; of risk to be usedin could lead to new quantifications theoreticalmodels. There are instrumentsdevelopedby psychologists whichcould to measurerisk aversion- instruments in finance be used in a varietyof ways by researchers of riskperception. to studythe phenomenon Although workin this area,the therehas beensome preliminary

surfacehas barelybeen scratched.Filer, Maital, and of portSimon [8], in a studyusinga game-simulation folio investment, providesupportfor the premisethat subjectiverisk aversionunderliesportfolioselection. Using a chance-bet questionnaireto measure risk aversion, they found that persons with higher risk aversion chose portfolios with less systematic risk; they also foundthat personswho believedin theirown ability to control events and outcomes (a belief measuredby a 29-item scale devised by social psyriskierportchologistJulianRotter)had significantly folios. Thus they establishedan empirical relation in the face betweenattitudestowardriskandbehavior of risk - a findingthat servesas a promisingbeginning to the study of risk perceptionin finance. 4. In their attemptto explain and predicthuman behavior, psychologists have developed techniques which might be useful to financial researchersinterested in the valuation process. The popular literaturein financeis filled with reports(largelyinwho consistentlyoutperform validated)of individuals to andinformative the market.It wouldbe interesting conductscientificstudieson suchindividuals. Willing participantswith a documentedrecord of market success would be difficult to find, but findingthem may prove to be worthwhile. Research into the methods, thought processes, psychologicalprofiles, attitudestoward risk, motivations,views on the efficient market hypothesis, and self-insights of 'superior'forecasters(if they do exist) could be very and educators. useful to theoreticians, practitioners, 5. A numberof studies have been done on social forces constrainingpeople's opinions and attitudes; see Asch [2], for example. The replicationof such studies,this time in financialsettings,may be producdonein a group, tive and useful.Through experiments it mightbe possibleto learnmoreaboutthe effectsof the group on individualdecision-makingand also in regard aboutthe processof groupdecision-making to investing.For example, once each individualhas rated a stock, it might be interesting to see if of the group'sratingand/or groupdiscusknowledge sion wouldresultin changedindividual ratings.Also, an investigationcould be done on how much an investor weighs his own predictionof a firm's earning power as opposed to his guess as to the predictions madeby others.Since institutional investingis so imis portantin the markettodayandsincesuchinvesting often the work of committees, it seems especially profitable to study how individual investors are affectedby the views of others.

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Conclusion
The systematic study of behavior has never been taken very seriously in finance. Perhaps this is because, following the positivist criterion laid down by Friedman and Savage [10], theoretical constructs are judged by how useful they are for purposes of prediction, rather than by how well they conform to the way people actually behave and choose. Most financial researchers seem to add to the positivist criterion the conclusion that since it is possible to avoid behavior and find something that is useful, a study of behavior can only lead to what is useless. This is not necessarily the case. The positivist criterion does not logically lead to the anti-behaviorist conclusion. Interestingly enough, many studies based on modeling the market end up with researchers offering some possible behavioral considerations to explain numerical results. The fact that researchers find it necessary to do so would seem to indicate that behavior is important and is worthy of study. There is every indication that the study of behavior could be useful in finance, especially because observation reveals that many people in the market simply do not act as might be expected from theory alone. For example, the efficient market hypothesis may be a very useful theoretical construct, but there are many people who act as if they do not believe an efficient market to be a reality. Money managers and individual investors trying to beat the market fall into this category. And the controversy surrounding proposals which change the form but not the substance of financial information reported to the public (for example, the reporting of foreign exchange gains and losses) reveals that there are many who question the efficiency of the market, because a market that is truly efficient should be able to "see through" such changes. For too long, the "black box" image of the market has dominated financial research. As Davidson comments: "What mysteriousbits of alchemy are performed within the box, aside from vigorous bargaining of buyers and sellers, remains largely unexplained" [6, p. 203]. It does not have to be that way, if only the discipline of finance were more open to new methodologies for research. Tradition has great power; it can foster creative thought, but it can also stifle it. It is impossible to say with certainty what could be achieved with a behavioral methodology in finance. We will not know until we fully explore it, but the evidence does seem to indicate that there is great potential in this area.

References
1. A. Rashad Abdel-khalik and James C. McKeown, "Understanding Accounting Changes in an Efficient Market: Evidence of Differential Reaction," The Accounting Review (October 1978), pp. 851-868. 2. Solomon E. Asch, "Opinions and Social Pressure," Readings in Managerial Psychology, eds. Harold J. Leavitt and Louis R. Pondy, Chicago, University of Chicago Press, 1964, pp. 304-314. 3. H. Kent Baker and John A. Haslem, "Toward the Development of Client-Specified Valuation Models," Journal of Finance (September 1974), pp. 1255-1263. 4. Claude Bernard, An Introduction to the Study of Experimental Medicine, trans. by Henry Copley Greene, New York, Schuman, 1949. 5. 0. K. Burrell, "Possibility of an Experimental Approach to Investment Studies," Journal of Finance (June 1951), pp. 211-219. 6. Sidney Davidson, "Some Comments on Direction for Future Research in Accounting," The Impact of Accounting Research on Practice and Disclosure, eds. A. Rashad Abdel-khalik and Thomas F. Keller, Durham, Duke University Press, 1978, pp. 201-206. 7. Eugene Fama and Merton H. Miller, The Theory of Finance, Hinsdale, Dryden Press, 1972. 8. Randall Filer, Shlomo Maital, and Julian Simon, "Risk-Taking and Risk Aversion: A Game-Simulation of Stock Market Behavior," unpublished paper read at the spring meeting of the Eastern Finance Association, April 21, 1979, Washington, D. C. 9. Jean Baptiste Joseph Fourier, "The Analytical Theory of Heat," cited in Herbert A. Simon, Models of Man, New York, John Wiley & Sons, Inc., 1957. 10. Milton Friedman and Leonard J. Savage, "The Utility Analysis of Choices Involving Risk," The Journal of Political Economy, (August 1948), pp. 279-304. 11. Frederick Herzberg, Work and the Nature of Man, New York, World Publishing Co., 1966. 12. Yuji Ijiri, "The Nature of Accounting Research," Part IV of "Report of the American Accounting Association Committee on Research Methodology in Accounting," The Accounting Review, Supplement to Vol. XLVII, 1972, pp. 444-455. 13. Michael C. Jensen, "Some Anomalous Evidence Regarding Market Efficiency," Journal of Financial Economics (June/September 1978), pp. 95-101. 14. Abraham Kaplan, The Conduct of Inquiry: Methodology for Behavioral Science, San Francisco, Chandler Publishing Co., 1964. 15. Michael Keenan, "Models of Equity Valuation: The Great Serm Bubble," Journal of Finance (May 1970), pp. 243-265. 16. John Maynard Keynes, The General Theory of Employment, Interest and Money, New York, Harcourt, Brace & Co., 1936.

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17. Wilbur G. Lewellen,Ronald C. Lease, and Gary G. Schlarbaum,"Patterns of Investment Strategy and Behavior Among Individual Investors,"Journal of Business(July 1977),pp. 296-332. 18. Jay W. Lorsch, "Making BehavioralScience More Useful," Harvard Business Review (March-April 1979),pp. 171-180. 19. Harry Markowitz, "Portfolio Selection,"Journal of Finance(March 1952), pp. 77-91. 20. AbrahamMaslow, Motivationand Personality,New York, Harper& Bros., 1954. 21. Merton H. Miller and Franco Modigliani,"Dividend of Shares,"Journal Policy, Growth,and the Valuation 411-433. Business (October1961),pp. of "Contributions of the Behavioral 22. F. J. Roethlisberger, Sciences to a General Theory of Management," Readings in ManagerialPsychology, eds. Harold J. Leavitt and Louis R. Pondy, Chicago, Universityof ChicagoPress, 1964. of the Asset PricingTheory's 23. RichardRoll, "A Critique Tests (Part I: On Past and PotentialTestabilityof the Theory)," Journal of Financial Economics (March 1977),pp. 129-176.

24. Stephen A. Ross, "The ArbitrageTheory of Capital Asset Pricing," Journal of Economic Theory (December1976),pp. 341-360. 25. HerbertA. Simon, Models of Man, New York, John Wiley & Sons, Inc., 1957. 26. Paul Slovic, "Psychological Study of Human Judgment: Implications for Investment Decision Making,"Journal of Finance (September1972), pp.
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to the Reportof the 27. RobertR. Sterling,"Introduction American Accounting Association Committee on ResearchMethodologyin Accounting,"The Accounting Review, Supplementto Vol. XLVII, 1972, pp. 401-407. Ac28. RobertR. Sterlinget al., "Reportof the American counting Association Committee on Research TheAccounting in Accounting," Review, Methodology to Vol. XLVII, 1972, pp. 398-520. Supplement 29. A. Zaleznik, C. R. Christensen, and F. J. Roethlisberger, The Motivation, Productivity, and Satisfactionof Workers,Boston, HarvardUniversity 1958. GraduateSchool of BusinessAdministration,

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American Journal of Edited by V. James Rhodes, University of Missouri-Columbia Agricultural Published by the American Agricultural Economics Association Economics
Articles: Bredahl, Bryant, and Ruttan, "Behavior and Productivity Implications of Institutional and Project Funding of Research"; Reinders, Boehlje, and Harl, "The Role of the Marital Deduction in Planning Intergenerational Transfers"; Binswanger, "Attitudes toward Risk"; Meekhof, Tyner, and Holland, "U.S. Agricultural Policy and Gasohol"; Swinbank, "European Community Agriculture and the World Market"; Brookshire, Randall, and Stoll, "Valuing Increments and Decrements in Natural Resource Service Flows." Notes: Cochrane, "Some Nonconformist Thoughts on Welfare Economics and Commodity Stabilization Policy"; and Plaut, "Urban Expansion and the Loss of Farmland in the United States." Plus more Articles, Notes, and Book Reviews.
Annual membership dues (including Journal) $25; annual subscription rate $35; individual copies $10. Contact John C. Redman, Agricultural Economics, University of Kentucky, Lexington, KY 40546. Published in February, May, August, November, and December.
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August 1980

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