Behavioral Finance

Behavioral finance is a field of study that combines Psychology - 20230221103826 and Economics to better understand why people make certain financial decisions and how those decisions can impact financial markets.

Behavioral finance is based on the idea that people's emotions, Cognitive Bias - 20230221095209, and cognitive limitations can influence their financial decisions in ways that are not always rational. For example, individuals may be prone to making emotional decisions, such as buying stocks during a market bubble, or they may suffer from cognitive biases, such as overconfidence or optimism, which can lead them to make suboptimal investment choices.

Behavioral finance research has identified several key biases that can impact financial decision-making, including:

• Overconfidence: A tendency to overestimate one's ability to predict the future, often leading to poor investment choices.
• Anchoring: A tendency to rely too heavily on a starting point, such as the current price of a stock, when making investment decisions.
• Framing effect: A tendency to make different decisions based on how information is presented, such as the wording of a question.

Behavioral finance has important implications for financial markets and investors, as it helps to explain why markets can be inefficient and why certain market trends may persist. By understanding these biases, investors can be better equipped to make informed investment decisions and avoid costly mistakes.

META

Status:: #wiki/notes/mature
Plantations:: Finance - 20230221102436
References:: L'art du trading