Santa Clara University

Interdisciplinary Action


Meir Statman, Glenn Klimek Professor of Finance and Chair of the Department of Finance; and Hersh Shefrin, Mario L. Belotti Chair in the Department of Finance.

Professors Meir Statman and Hersh Shefrin work at the frontier of psychology and finance. The pioneers of a relatively new field—behavioral finance—they study how people make financial decisions and consider psychology to be just as important as market fundamentals.

Statman and Shefrin wrote the first article in a finance journal on behavioral finance, “Explaining Investor Preference for Cash Dividends,” Journal of Financial Economics, in 1984. And although both professors are now consistently sought out by the media on financial matters (The Wall Street Journal, Money, Business Week, Fortune, Forbes, just to name a few), they are modest regarding their position as instigators of a paradigm shift in finance theory. “That’s too boastful,” Shefrin said. “But, we were there and we can show the scars.”

“Our profession as whole has had to engage in debate, which has been quite fierce at times,” Shefrin added. “When you’re taking about paradigm shifts, you’re talking about religion in a sense, so the debates can be quite sharp.”

A key player in that debate was the late Merton Miller of the University of Chicago, widely considered the founder of modern finance, and who won the Nobel Prize in economics. “As one of the primary people to bring the neoclassical paradigm to finance in the late 1950s, Merton was not happy to see a challenge to the reigning paradigm,” Shefrin said. Interestingly, when Miller passed away in 2000, Forbes magazine asked Shefrin to write his obituary.

“When we started our work together, we didn’t say we wanted to deviate from neoclassical finance,” said Statman. But they say they felt compelled to answer a few burning questions that didn’t fit with the current thinking. Like why people prefer dividends to capital gains when dividends are taxed at a higher rate.

“We always found it really ridiculous that finance academics kept two selves: a rational self they presented in their research and teaching, and a personal self where they did what they described as irrational in their classes, such as trying to beat the market by picking winning stocks. No one was asking about the disconnect,” Statman said.

So, back in 1980 when Shefrin was working in the economics department and Statman in finance, they started to think about things in a different way, outside of the existing framework, to try to solve real-life financial problems.

“We found that being open to other disciplines, other knowledge, allowed us to find answers that had eluded others,” Statman said. Thus began more than two decades of their interdisciplinary work at SCU. This willingness to cross departmental boundaries—openness to other theories of thought—has been key to their success.

“Meir has brought people from accounting, management, marketing as well as people from economics into behavioral finance,” said Shefrin. “Interdisciplinary work in academia is a huge challenge, because most of the time, the different departments speak different languages,” he continued. “So, it takes a special person. It takes leadership to make it attractive enough to bring in other people and make them want to participate.”

Statman says they wouldn’t have been able to do their kind of work at another university. “At Santa Clara we are free to contribute in any field, near or far, as long as the contributions are rigorous and valu-able to fellow academics, professionals, students or the general public.”

“There’s something truly unique and special about this university,” added Shefrin. “People are encouraged to be as good as they can be in more ways than one.”

In terms of the president’s challenge that “universities should be places of open and exacting discernment and debate,” Shefrin and Statman say that openness has been the most important quality in their success, because of the interdisciplinary nature of their work. But debate is essential, too—not just within in the field, but also amongst themselves. “We come to an agreement by engaging in a debate with each other, test each other, and arrive at something sensible,” said Shefrin.

Students play a part in the debate, too. Christine Russell ’71, MBA ’83, now CFO for Cupertino-based OuterBay Technologies, attended SCU for both her bachelor’s degree in English and her MBA in finance. Both Statman and Shefrin have quoted a term paper she wrote in their own work about the disposition of managers to throw good money after bad, which was based on her personal experience with the company she was working for at the time.

Russell appreciates how Statman and Shefrin were able to help her bridge together what she learned in the classroom to the working world. “They didn’t ‘tell’ students. They used methods in and out of the classroom to promote dialog,” Russell recalled. “They asked a question and then listened patiently to answers. They behaved as if they loved to learn new things. This was much more interesting to me than being lectured.”

But most of all she remembers how fun they were. “The first quality I admire in these gentlemen is their sense of humor,” she said. “They laugh at the stock market, at business, and at themselves.”

And although they enjoy debating with one another and are clearly having a lot of fun, Statman and Shefrin say their behavioral work would not be published in peer-reviewed finance journals had they not used the exacting rigors of science.

Statman and Shefrin are thankful for SCU and for each other. “Meir and I are personally lucky to have each other as colleagues. There was magic and synergy in terms of collaboration, that the whole was much more than the sum of the parts,” said Shefrin.

"Neither of us would have been able to do what we have done together," added Statman.

  • The Leavey School of Business ranked 11th nationwide in part-time MBA programs by U.S. News & World Report.
  • Business school faculty have held editorial positions on the boards of more than 70 publications, journals, and reviews.