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Free Press: U of M prof investigates why we’re often our own worst enemies with finance decisions

May 2, 2016 — 

As the Winnipeg Free Press reports:

Finance professor Chi Liao’s background in mathematics often comes in handy in her line of work.

After all, both corporate and investment finance are built upon numbers. Yet financial reporting — balance sheets and cash-flow analysis — is not her area of interest.

In fact, her expertise has less to do with the numerical side of money and more to do with how our emotions affect how we manage our hard-earned cash.

“I’ve always been fascinated by people-watching and why it is we do what we do,” says Liao, who studied mathematics and finance before completing a PhD in behavioural finance from the University of Toronto in 2014.

Afterwards, Liao — who grew up in Winnipeg — took a position as an associate professor at the Asper School of Business at the University of Manitoba.

And this past fall, she taught the first course ever offered at the school in behavioural finance.

What behavioural finance aims to explain is why, despite our best and seemingly most rational intentions, emotions often still get the best of us.

“As it turns out, a lot of smart people do funny things when it comes to their investments.”

Much of this can be boiled down to biases, Liao says. These are implicit prejudices we hold about money that lead to thinking errors we’re unaware we’re even committing because we’re under the assumption we’re acting rationally.

But in reality we’re not….

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