Behavioral Finance Essay

The senior managers, therefore, have to go with their gut instinct or previous experience in similar situations. Thus, most of these top managers being overly optimistic will tend to favor positive outcomes as the ultimate goal that goes against the prudence principle in Economics and accounting disciplines. Prudence Principle in the economics and accounting disciplines calls for the preparation of the worst-case scenarios to avoid significant financial negative impact on the organization (Heaton). Depending on the outcome of the research intended, it will enable other investors, recruiters and researchers determine if there is any correlation between positive optimism by the top-level managers and financial performance of a firm. Due to this fact, this situation warrants for research into determining whether these claims are valid.