The third generation of behavioral finance has shifted focus, so we can make smarter financial decisions that truly serve our well-being!
Since 2001, DNA Behavior has been building psychometric tools that measure how each individual’s unique behavior influences the financial decisions they make. At the time, the financial planning industry was laser-focused on building wealth. But we were looking beyond the numbers to see how we might impact a person’s entire well-being. We wanted to help people understand what was driving their financial decisions so they could use that knowledge to live better.
We were a bit ahead of our time, as it wasn’t until almost two decades later that the thinking on the subject of behavioral finance shifted! Here’s a little history.
1st Gen: People have been fascinated by the psychology of financial decision-making since the early 1900s. However, it wasn’t until Daniel Kahneman and Amos Tversky's book Prospect Theory: A Study of Decision Making Under Risk was published in 1979 that behavioral finance gained some attention. In 2002, Kahneman won the Nobel Prize in Economic Sciences for his work on the psychology of judgment and decision-making, and it played an instrumental role in launching the first generation of behavioral finance.
2nd Gen: In 2019, Meir Statman, Professor of Finance at Santa Clara University, published Behavioral Finance: The Second Generation. His predecessors had described investors as irrational, with cognitive and emotional factors heavily influencing financial choices. Statman posited that people are not simply rational or irrational—they’re “normal” with a range of wants and needs that extend beyond building wealth. This perspective led the way to understanding behavior more holistically.
3rd Gen: We are now in the third generation of behavioral finance. The focus has shifted beyond money management to something much broader. People want to live better lives and have a greater sense of well-being. So, this generation is about making smart financial decisions that support that end goal. The key to that is getting a better understanding of each person’s core behavioral style, which, as we mentioned, DNA Behavior has been working on for over two decades!
Over the years, we’ve learned that stress cannot be ignored when it comes to managing one’s finances. Money-induced stress is universal, and it has a major impact on financial decisions.
The American Psychological Association reports that 75% or more of people identify money as their primary source of stress.
With the modernized whole-life approach to financial planning, spreadsheets and stock picks take a backseat to the human side of the equation. By understanding a person’s natural behaviors (often triggered by stress) as well as their motivations, the personal well-being of investors is ultimately improved.
A whole-life approach accounts for:
Our philosophy has always been centered around the concept of well-being as the ultimate goal of financial decisions. That was the crux of the book, Financial DNA – Discovering Your Financial Personality for a Quality Life, a book written by DNA Behavior’s founder, Hugh Massie, and published in 2006.
"Every life decision is a financial decision, and every financial decision impacts your life."
Hugh Massie, Executive Chairman & Founder, DNA Behavior
Money and behavior are always in the background of our lives, whether it’s about work, relationships, health, or community. In 2022, we further developed these ideas in our work on Money Energy. Using behavioral science technology, we were able to show how each person has a unique energetic relationship with money, directly influencing their well-being and overall success. And, when your behavior aligns with your values and that energy, you build not just wealth, but quality of life.
In April 2025, Hugh Massie was contacted by Meir Statman to explore how the ideas in his new book intersect with our behavioral work at DNA Behavior. In his groundbreaking book, A Wealth of Well-Being: A Holistic Approach to Behavioral Finance, he says that well-being is the real wealth, and money can either enhance or restrict that wealth depending on how we use it. From our perspective, how well we understand ourselves is the hidden force behind all of it!
Meir has provided invaluable research on well-being, while DNA Behavior brings the science-based measurement tools to bring these ideas to life! Our platform measures a person’s hard-wired behavioral style and maps out how they prioritize different elements of their well-being.
Here are a few behavioral styles along with examples of their associated strengths and challenges:
It’s important to understand that no style is better than another, with each one having its own strengths and blind spots. The key is being aware and aligning your decisions accordingly.
One of Meir’s most important calls to action is for financial advisors to become well-being advisors—guides who help clients not only accumulate money but use it to live fulfilling, purpose-driven lives. We wholeheartedly agree!
As we look ahead, acknowledging the foundation laid by pioneers like Kahneman and Statman, we have to start thinking about what’s next as behavioral finance continues to evolve. If we were to guess, we’d say it will focus on the heart since we are now learning that it is central to decision-making.
4th Gen: According to the HeartMath Institute, the heart sends more signals to the brain than the brain sends to the heart—and its energetic field is 60 times more powerful! So, it only makes sense that heart health should be considered a component of behavioral finance. If we want to help people make better financial decisions and reduce money-related anxiety, why not address our physiological and emotional center? The next frontier may see financial advice include nutrition, emotional resilience, stress recovery, and money energy alignment, and it may be closer than you think!
We are forever grateful for the groundwork laid by the pioneers of behavioral finance. Now, with advanced technologies at hand, we are learning about human behaviors at an unimaginable speed.
As we enter the era of Precision Life Planning, where behavior and financial decisions come together to unlock exponential potential, we will continue to build the tools required to master life through a better understanding of ourselves!
Book a Call with one of our experts to learn about the amazing behavioral science technology already available!