Question

Difference between traditional theories, modern theories and behavioural finance .

Answer 1

These biases can affect all types of decision- making, but have particular implications in relation to money and investing. Behavioral finance is an add-on paradigm of finance, which seeks to supplement the standard theories of finance by introducing Behavioral aspects to the decision-making process.

Answer 2

Difference between traditional theories, modern theories and behavioral finance:

• Modern theory in finance helps in the calculation of the accounts based on the assumptions and not analyzing the past histories in finance.
• While in the case of traditional theory, the decisions in finance are taken on the basis of the tax returns, capital markets which affect the total value of the firm.
• Behavioral finance is a study which involves the psychological behavior of the investors in the process of finance.

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