I am a Distinguished Professor of Finance and Paul Merage Chair in Business Growth at the Merage School of Business, UC Irvine. My research interests include behavioral economics and finance, the theory of social interactions, and cultural evolution. I am a Fellow and former President of the American Finance Association, and a Senior Fellow of the Asian Bureau of Finance and Economic Research.
Ethical Systems Interview (November 2015)
My Approach to Ethical Systems:
My first angle on ethical systems concerns how moral intuitions and feelings affect financial decisions. Behavioral finance has focused mainly on how cool cognitive biases affect investor decisions, market prices, and firm behavior. Moral attitudes infuse our thinking about how much to save (as in Aesop’s fable of the ant and the grasshopper), when to bear risk (compare the moral connotations of the terms “entrepreneur,” “speculator,” or “gambler”), and how to treat others (is it fair to exploit an informational advantage? intentionally default on your mortgage?)
These three categories of decisions (how much to save versus consume, what kind of risks to bear, and conflicts of interest or “agency problems” between market participants) cover almost all of finance. This highlights the importance of integrating moral attitudes into the study of finance.
Second, I’m interested in how moral attitudes bias the process by which beliefs are transmitted from person to person; and on how transmission biases affect the spread of moral attitudes.
As an example of the first possibility, when bears sell short a firm’s stock, the apparent harm is concrete and fits easily under a moralistic rubric of “profiting from the misfortune of others.” The benefit of short selling, making the price of the stock more informationally efficient, is abstract, and therefore not nearly as attractive for use in casual conversation. As such, negative beliefs about short selling spread at the expense of positive ones. So moral attitudes induce transmission biases that can affect social outcomes, such as regulation.
My Ethical Systems Research Page: Accounting
My Major Relevant Publications:
- “Presidential Address: Social Transmission Bias in Economics and Finance,” David Hirshleifer, Journal of Finance, 75(4), August (2020): 1779-1831.
- “Opportunism as a Firm and Managerial Trait: Predicting Insider Trading Profits and Misconduct,” Usman Ali and David Hirshleifer, 126(3), December (2017): 490-515, Journal of Financial Economics.
- “Thought and Behavior Contagion in Capital Markets,” chapter in Handbook of Financial Markets: Dynamics and Evolution (2009).
- “The Psychological Attraction Approach to Accounting and Disclosure Policy,” article in Contemporary Accounting Research (2009).
- “Psychological Bias as a Driver of Financial Regulation,” article in European Financial Management Journal (2008).
- “Investor Psychology in Capital Markets: Evidence and Policy Implications,” article in Journal of Monetary Economics (2002).
- “Learning from the Behavior of Others: Conformity, Fads, and Informational Cascades,” article in Journal of Economic Perspectives (1998).
See a more detailed list of my academic publications relating to moral psychology.