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.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

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.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved

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.

Dictionary of Financial Terms. Copyright © 2008 Lightbulb Press, Inc. All Rights Reserved.
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The psychology of saving: a study on economic psychology. Glos: Edward Elgar.
and Torgler, B., 'Culture Differences and Tax Morale in the United States and in Europe', 2006, Journal of Economic Psychology, vol.
The author covers file sharing systems and the law, economic psychology issues inherent in illegal online file sharing by individuals and institutions and illegal online file sharing as production systems, illegal online file sharing and information producersAE strategies, the economics of digital context, and many other related subjects in fourteen chapters.
Proceedings of the 24 International Symposium on Economic Psychology, Belgirate, Italy.
"The life and work of George Katona." Journal of Economic Psychology, 2: 1-31.
(2010), 'National well-being and international sports events', Journal of Economic Psychology, 31, pp.
In this special issue, the 22 presentations that have been accepted for publication have been grouped together into eight classical domains in psychology: Methodology (one paper), Psychophysics (one paper), Educational Psychology (three papers), Economic Psychology (four papers), Moral Science (four papers), Political Psychology (two papers), Health Psychology (five papers), and Cross-Cultural Psychology (two papers).
Some researchers rely on the human capital theory and investigate the impact of educational mismatch on productivity through its impact on wages (Rumberger, Journal of Human Resources, 1987; Van der Meer, Economics of Education Review, 2006), whereas other researchers rely on the job satisfaction theory and investigate the impact of education on absenteeism, turnover, shirking and other correlates of worker productivity (Tsang, Economics of Education Review, 1987; Hersh, Review of Economics and Statistics, 1991; Tsang et al., Industrial Relations, 1991, Verhaest and Omey, Journal of Economic Psychology, 2009).
Previous reports suggested she might take the position of a minister in charge of the elections, an office which Bliznashki later renounced to have in the cabinet.Denitsa Zheleva, an adviser on foreign policy, is a Master of Scandinavian Studies, Americna Studies and Economic Psychology from the Friedrich-Wilhelm University in Bonn, Germany.

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