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Show 232 Britt Boril This paper provides a survey of the field of behavioral finance and its development, and it ex-plores the extent to which behavioral biases and heuristics may have affected the 2008 economic recession both on the part of end-investors and institutions involved in the rating, trading, regu-lation, and packaging of mortgage backed securities and collateralized debt obligations (CDOs). In exploring a number of different theories surrounding the economic crisis and defining several psychological pitfalls that could have played a role, we highlight the theories of overconfidence; diffusion of responsibility; herding and conformity; groupthink; ambiguity aversion; and repre-sentativeness as key biases involved in the housing crisis. Further, this paper seeks to identify a potential correlation between consumer sentiment mea-sures and the rising price of residential real estate leading up to the financial crisis. Sentiment measures are retrieved from Baker and Wurgler (2006) as well as from the University of Michigan and residential housing price fluctuations are modeled using data collected from the S&P/Case- Shiller Home Price Indices. We run a series of regressions to test the degree to which consumer sentiment measures are predictive of housing prices. A SURVEY OF BEHAVIORAL FINANCE AND ITS ROLE IN THE 2008 ECONOMIC RECESSION Britt Boril (Michael Cooper) Department of Finance University of Utah honors college spring 2012 Michael Cooper |