Since then economists have looked at alternative theories to explain and predict the real world dynamics. This is where the behavioral economics comes in. Among other things, it seeks to explain why humans behave how they behave, what are the impacts of this in the economy (here we are particularly concerned with financial markets), how we can avoid various biases to make better investment decisions.
What is the role of investor’s confidence in the financial markets? Why a downgrade of the US treasury sends ripples in the stock markets all over the world .How do investors react to such kind of information? Do we take all the information into account before...
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...s have shown that humans are risk averse, and they value loss more than gains from a bet, which means that wealth shows diminishing marginal utility.
There is a lot of research work going on in this particular field, more so since the crisis of 2008. The purpose of this article was to make readers aware of the subject .Behavioral finance is an interesting mix of logics, psychology and economics. Budding investors and management students should look into this in more detail so that they are better equipped to make financial decisions.
Predictably Irrational: Dan Ariely.
Fooled by Randomness: Nicholas Nassim Taleb
Black Swan: Nicholas Nassim Taleb.
Research paper: Behavioral Finance: Thomas Sewell.
Research paper: Herd Behavior in Financial Markets: Sushil Bikchandani and Sunil Sharma.
Buttonwood blog (The Economist): Foolishness of the crowd.
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