Behavioral finance

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Behavioral finance

An important subfield of finance. Behavioral finances uses insights from the field of pyschology and applies them to the actions of individuals in trading and other financial applications.

Behavioral Finance

A theory of finance that attempts to explain the decisions of investors by viewing them as rational actors looking out for their self-interest, given the sometimes inefficient nature of the market. Tracing its origins to Adam Smith's The Theory of Moral Sentiments, one of its primary observations holds that investors (and people in general) make decisions on imprecise impressions and beliefs rather than rational analysis. A second observation states that the way a question or problem is framed to an investor will influence the decision he/she ultimately makes. These two observations largely explain market inefficiencies; that is, behavior finance holds that markets are sometimes inefficient because people are not mathematical equations. Behavioral finance stands in stark contrast to the efficient markets theory. See also: Naive diversification, Formula plan, Subjective probabilities.

Behavioral finance.

Behavioral finance combines psychology and economics to explain why and how investors act and to analyze how that behavior affects the market.

Behavioral finance theorists point to the market phenomenon of hot stocks and bubbles, from the Dutch tulip bulb mania that caused a market crash in the 17th century to the more recent examples of junk bonds in the 1980s and Internet stocks in the 1990s, to validate their position that market prices can be affected by the irrational behavior of investors.

Behavioral finance is in conflict with the perspective of efficient market theory, which maintains that market prices are based on rational foundations, like the fundamental financial health and performance of a company.

References in periodicals archive ?
Fadi Makki, member of the Council for Behavioural Sciences at the World Economic Forum, and pioneer in the application of behavioural economics to public policy in the Middle East, will give a presentation about "Applications of behavioural economics and nudge concepts in various education policy settings" followed by a question and answer session.
SC Secretary-General Hassan al Thawadi said he was happy to see HBKU endorsing the concept of behavioural economics in the run-up to the 2022 FIFA World Cup.
SC secretary-general Hassan al-Thawadi said he was happy to see HBKU endorse the concept of behavioural economics in the run-up to the 2022 FIFA World Cup.
Behavioural economics has always met with a bit more resistance than it deserved.
The start-up offers artificial intelligence and behavioural economics and currently sells insurance in eight US states.
His empirical findings and theoretical insights have been instrumental in creating the new rapidly expanding field of behavioural economics.
US economist Richard Thaler won the 2017 Nobel Economics Prize for his contributions in the field of behavioural economics, showing how human traits affect supposedly rational markets, the Royal Swedish Academy of Sciences said on Monday.
This chapter presents also the basic theoretical model of behavioural economics that explains choice - theory of perspectives.
This year's series will cover the latest developments in energy, water, transport, telecoms, digital policy, banking regulation, and behavioural economics, with each lecture followed by formal and informal discussion.
Contract Awarded for Behavioural Economics Team of Australia
s Behavioural Insights Team, also known as the Nudge Unit, "applies insights from academic research in behavioural economics and psychology to public policy and services.
Notions around how we attribute value to something and make decisions around price have been transformed in recent decades by behavioural economics and behavioural psychology from the likes of Gneezy, an associate professor at the Rady School of Management at the University of California, San Diego.

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