As readers of this column know by now, I’m a fan of behavioral finance. I think it offers a lot of lessons to advisors as a way to understand investor psychology.

The behaviorists say that we were blinded in the 2000s to the fact that our irrational actions were setting us up for a fall. (Bear with me, this has implications for advisors.) When the fall occurred, and markets melted down in 2008, it was viewed as a confirmation for behavioral economics. After all, the markets were unable to correct themselves. The invisible hand had failed.

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