Question

Differences between traditional biase and behavirial biase

Answer 1

Traditional Finance focuses on how individuals should behave. Individuals are considered as being “Rational Economic Men”. This leads to markets where prices reflect all available relevant information.

Behavioral Finance recognizes that the way the information is presented to investors can affect how they make decisions and it can lead to emotional and cognitive biases. Behavioral Finance focuses on why investors behave the way they do. Since investors’ decisions are not always optimal, this results in markets that are temporary or persistently inefficient.