Explain different human bahavior theory in the context of behavioral finance
Answers
Hey!!
Meaning of Behavioural Finance:
Behavioural finance is a discipline that attempts to explain and increase understanding
regarding how the cognitive errors (mental mistakes) and emotions of investors
influence the decision making process. It integrates the field of psychology,
sociology, and other behavioural sciences to explain individual behaviour, to examine
group behaviour, and to predict financial markets.38According to behavioural finance
people are not always rational: many investors fail to diversify trade too much, and
seem to selling winners and holding losers. Not only that, but they deviate from
rationality in predictable ways.
As the evidence of the influence of psychology and emotions on decisions became
more convincing, behavioural finance has received greater acceptance.
“Behavioural finance relaxes the traditional assumptions of financial economics by
incorporating these observable, systematic and very human departures from
rationality into standard models of financial markets. The tendency for human beings
to be overconfident causes the first bias in investors, and the human desire to avoid
regret prompt the second” (Barber and Odean,1999)40
Individual investor and their behaviour had received lot of consideration and focus of
interest of many scientists not only being confided only to economist, but, due to the
inclusion of the findings and the methodology of psychology into financial studies.
Despite many debates, this has slowly led to the establishment of behavioural
economics and behavioural finance as widely recognised sub-disciplines.
HOPE IT WILL HELP YOU
【MARK AS BRAINLIEST】!!
Have a good day!