Finance And Behavioral Finance

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Recommended: Theories of behavioral finance

Behavioral finance, also referred to as behavioral economics, is a field of finance that recommends psychology-based theories to explain stock market anomalies and the subsequent effect on markets (Sewell, 2005). Behavioral finance is important to know because it helps explain why and how markets might be affected or inefficient, and the influence of psychology on the behavior of financial experts. As we know there are many instances where emotion and ones psychological state can influence ones decisions, causing us to behave in unpredictable ways. Using psychology one can explore human judgment, behavior, and well being, and can learn important facts about human assumptions and how they play into traditional economic assumptions.
Behavioral Finance and the Financial Crisis

Behavioral finance is being considered for the prevention and/or resolution of financial crises for the simple fact that the latest crisis started with the wave of subprime mortgage defaults in 2007, and people’s ambitions to make money and have the “American Dream.” Many American families succumbed to the pre...

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