Berkeley Program in Law and Economics

This Article studies how beliefs about strategic behavior interact with such emotions as guilt and fear in securities investment. Most investors lack the inclination, knowledge, or time to actively manage their investments full-time. Instead, most investors hire a financial professional to manage their portfolios. There are well-known incentive and behavioral problems with such a principal-agent relationship. This Article focuses on some novel emotional consequences of the fiduciary investing relationship. This Article applies psychological games of trust and herd-like behavior to explain how the duties of loyalty and care alter beliefs about strategic behavior, emotions that depend on those beliefs, and strategic behavior itself. This Article also discusses the applicability of such models to corporate law and other fiduciary settings.