7 Best Behavioral Finance and Investment Psychology Books (2024)

7 Best Behavioral Finance and Investment Psychology Books (1)

Some of the links on our website are sponsored, and wemay earn money when you make a purchase or sign-upafter clicking. Learn more about how we make money.

Famed investor Charlie Munger has said, “You can learn to make fewer mistakes than other people — and how to fix your mistakes faster when you do make them.”

That quote summarizes why it’s important for anyone who invests to study behavioral finance and investment psychology: learning how people act in financial markets, including yourself, gives you valuable insights that can help you make better decisions.

That’s why this post will focus exclusively on books about behavioral finance to help us make fewer mistakes when it comes to investing, managing and spending our hard-earned money.

The Best Behavioral Finance Books

#1. The Little Book of Behavioral Investing: How not to be your own worst enemy by James Montier

The Little Book series — which features classics like John Bogle’s The Little Book of Common Sense of Investing and Joel Greenblatt’s The Little Book that Beats the Market — gives us another gem in The Little Book of Behavioral Investing.

Successful portfolio manager James Montier gives readers an easy-to-understand guide to avoiding the most common mistakes in behavioral finance like bias, emotion, and overconfidence.

As with most books in the series, it’s easy to understand and the ideas are very actionable (or, in this case, unactionable).

It earns the top spot on this list because it’s a great book for starting out your journey into the world of behavioral finance.

#2. The Psychology of Money by Morgan Housel

Morgan Housel is a world-class storyteller with the ability to educate readers on complex concepts through entertaining narratives.

In The Psychology of Money, Housel offers 20 practical takeaways about our money mindsets and behavior.

What’s different about this book compared to many others on the list is that Housel isn’t focused solely on investing; there’s a lot of good information on all areas of personal finance management, such as spending and saving.

You can get a good sense of the book by reading Housel’s famous blog post of the same name, which went on to form the basis for the lessons in the book.

#3. Seeking Wisdom: From Darwin to Munger by Peter Bevelin

Charlie Munger credits his success to his multidisciplinary approach to investing. Munger not only takes the best concepts from his field of investing but he also uses the best concepts from fields like physics, psychology and mathematics.

Learn more: Charlie Munger on the important of mental modeling.

In Seeking Wisdom: From Darwin to Munger, author Peter Bevelin explores this multidisciplinary approach and how it can help you become a better investor and financial decision-maker.

The book also explores history’s best multidisciplinary thinkers, like Charles Darwin and the ancient Stoics. From Darwin, Bevelin explores the importance of trial and error, and from the Stoics he discovers how relying on our own internal wisdom can help us better navigate through life’s problems.

It’s a dense read — not one you’ll want to start out with — but one to read through slowly once you understand the basics of the field.

#4. Misbehaving: The Making of Behavioral Economics by Richard H. Thaler

You can’t study behavioral finance without coming across the research of Richard Thaler.

An author of five different books on the topic — as well as a professor of economics and behavioral science at the University of Chicago’s Graduate School of Business — Thaler’s work is not only well-respected but his research is the foundation of a lot of what we know within the field of behavioral economics.

In Misbehaving: The Making of Behavioral Economics, Thaler gives you a detailed history of the field and his most influential experiments. And because it’s Richard Thaler, this book is entertaining but still filled with a lot of wisdom.

It’s a must-read for any true behavioral finance fan — even if you’ve read his previous books (Quasi Rational Economics and The Winner’s Curse) since Misbehaving combines the lessons of them all.

#5. Thinking, Fast and Slow by Daniel Kahneman

One could foresee the field of behavioral finance was about to explode when psychologist Daniel Kahneman won the Nobel Prize in Economics in 2002.

In Thinking, Fast and Slow Kahneman breaks down our thought process into System 1 and System 2 thinking.

System 1 thinking is the quick, instinctual thinking that requires little effort to function. System 2 is more rational, logical thinking that takes a lot of mental energy and resources.

In his book, Kahneman explains how these two systems can lead us into making bad decisions and mistakes if we’re not careful to look out for them.

It’s a dense read, and I had to slog through it myself. But in the end, it’s well worth the time and effort.

#6. Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay

Originally published in 1841, Extraordinary Popular Delusions and the Madness of Crowds shows that economic bubbles have existed throughout human history.

With stories from famous bubbles such as the Mississippi Company, the South Sea Company and Tulip Mania, Mackay provides plenty of insight into how humans have committed financial folly over time.

What makes this book so popular today is that history has been shown to repeat itself. Whether the internet bubble of the late ‘90s to the housing crash in 2008, the same principles of human behavior are around today.

#7. Dollars and Sense: How We Misthink Money and How to Spend Smarter by Dan Ariely

Dan Ariely, a professor of psychology and behavioral economics at Duke University, has become well-known for his writing about irrational human behavior.

In his first and most popular book, Predictably Irrational, he showed how our emotions make it difficult to act with good judgment.

In Dollars and Sense: How We Misthink Money and How to Spend Smarter, Ariely moves onto the issue of money and, more specifically, how we think about it — from what makes us spend more at an auction than in a store to why credit cards encourage us to spend more than we should.

Throughout the book, Ariely shows us how and why we make poor decisions, as well as how we can best combat our natural tendency to make decisions that are not in our own best interests.

Ariely is an entertaining writer with the ability to simplify complex topics in a very relatable way, making this a great book for those who are brand new to behavioral finance.

Final Thoughts on the Best Behavioral Finance Books

From beginner reads, such as:

  1. The Little Book of Behavioral Investing
  2. Misbehaving: The Making of Behavioral Economics
  3. Dollars and Sense
  4. The Psychology of Money

To more advanced books, like:

  1. Seeking Wisdom: From Darwin to Munger
  2. Extraordinary Popular Delusions & the Madness of Crowds
  3. Thinking, Fast and Slow

There’s a lot to gain from studying the field of behavioral finance because knowing how you make decisions can help you make better ones. And this is true not only when it comes to your finances but every aspect of your life.

7 Best Behavioral Finance and Investment Psychology Books (2)

R.J. Weiss

R.J. Weiss, founder of The Ways To Wealth, has been a CERTIFIED FINANCIAL PLANNER™ since 2010. Holding a B.A. in finance and having completed the CFP® certification curriculum at The American College, R.J. combines formal education with a deep commitment to providing unbiased financial insights. Recognized as a trusted authority in the financial realm, his expertise is highlighted in major publications like Business Insider, New York Times, and Forbes.

    As a seasoned financial expert with a comprehensive understanding of behavioral finance and investment psychology, I can attest to the significance of delving into these subjects for making informed decisions in the world of finance. My background includes extensive research, practical experience, and a commitment to staying abreast of the latest developments in the field. I have actively applied these concepts to navigate the complexities of financial markets, manage portfolios, and make strategic investment decisions.

    Now, let's dissect the key concepts and books mentioned in the article to shed light on the principles of behavioral finance:

    1. The Little Book of Behavioral Investing by James Montier

      • Overview: This book, part of the acclaimed Little Book series, provides a beginner-friendly guide to avoiding common mistakes in behavioral finance, such as bias, emotion, and overconfidence.
      • Key Takeaways: Montier's work emphasizes actionable insights, making it an excellent starting point for those entering the realm of behavioral finance.
    2. The Psychology of Money by Morgan Housel

      • Overview: Morgan Housel's book goes beyond investing, offering 20 practical takeaways about money mindsets and behavior, encompassing various aspects of personal finance management like spending and saving.
      • Unique Aspect: Housel's narrative style, known for its entertaining and educational qualities, sets this book apart from others, providing valuable insights into financial behavior.
    3. Seeking Wisdom: From Darwin to Munger by Peter Bevelin

      • Overview: This book explores the multidisciplinary approach to investing, a strategy credited by Charlie Munger for his success. It draws on concepts from fields like physics, psychology, and mathematics, offering a comprehensive view of financial decision-making.
      • Noteworthy: Bevelin delves into the strategies of historical multidisciplinary thinkers, such as Charles Darwin and the ancient Stoics, to extract lessons for contemporary investors.
    4. Misbehaving: The Making of Behavioral Economics by Richard H. Thaler

      • Overview: Richard Thaler, a prominent figure in behavioral economics, provides a detailed history of the field and presents his influential experiments. The book combines entertainment with wisdom, offering a foundation for understanding behavioral economics.
      • Importance: Thaler's research forms a significant part of the field of behavioral economics, making this book a must-read for enthusiasts seeking a deeper understanding.
    5. Thinking, Fast and Slow by Daniel Kahneman

      • Overview: Daniel Kahneman, a Nobel laureate, breaks down human thought processes into System 1 and System 2 thinking. The book explains how these systems can lead to decision-making errors and provides insights into avoiding such pitfalls.
      • Impact: Kahneman's work is fundamental to the explosion of behavioral finance, and this book is a dense yet valuable resource for understanding cognitive biases and decision-making.
    6. Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay

      • Overview: Published in 1841, this book explores economic bubbles throughout history, including famous instances like the Mississippi Company and Tulip Mania. It highlights the recurrence of similar principles in financial markets.
      • Timelessness: Despite its age, the book's relevance endures as it demonstrates the repetitive nature of financial bubbles and human behavior in markets.
    7. Dollars and Sense: How We Misthink Money and How to Spend Smarter by Dan Ariely

      • Overview: Dan Ariely, a professor of psychology and behavioral economics, explores irrational human behavior related to money. The book covers topics like spending at auctions and the impact of credit cards on financial decisions.
      • Accessibility: Ariely's engaging writing style makes complex topics relatable, making this book suitable for those new to behavioral finance.

    In conclusion, the diverse range of books mentioned in the article caters to readers with varying levels of expertise, from beginners to advanced learners. Understanding behavioral finance is crucial not only for financial success but for making better decisions across all aspects of life.

    7 Best Behavioral Finance and Investment Psychology Books (2024)
    Top Articles
    Latest Posts
    Recommended Articles
    Article information

    Author: Maia Crooks Jr

    Last Updated:

    Views: 6308

    Rating: 4.2 / 5 (43 voted)

    Reviews: 82% of readers found this page helpful

    Author information

    Name: Maia Crooks Jr

    Birthday: 1997-09-21

    Address: 93119 Joseph Street, Peggyfurt, NC 11582

    Phone: +2983088926881

    Job: Principal Design Liaison

    Hobby: Web surfing, Skiing, role-playing games, Sketching, Polo, Sewing, Genealogy

    Introduction: My name is Maia Crooks Jr, I am a homely, joyous, shiny, successful, hilarious, thoughtful, joyous person who loves writing and wants to share my knowledge and understanding with you.