Have you ever regretted a purchase, but did it again anyway? Maybe you’ve bought stocks during a market high or overspent during a sale, even though you knew better. You’re not alone. These irrational money behaviours are more common than you’d think.
You might believe your financial decisions are logical. But in reality, your brain is constantly playing tricks on you. The field of behavioural finance reveals how psychology, rather than pure numbers, often drives our money choices.
This post explores the patterns and pitfalls in how we think about money, and how understanding them can improve your product sales, investments, and daily budgeting.
What Is Behavioural Finance?
The study of how psychological influences affect market outcomes and personal financial decisions is Behavioural finance. Unlike traditional finance, which assumes people act logically, behavioural finance says: they don’t.
Behavioural economics combines psychological insights with economic principles. Traditional economics often overlooks how people actually think, choosing instead to simplify decision-making processes to make models simpler.
- Analysts examine behavioural finance from multiple viewpoints, not just limited to stock market returns.
- In the stock market, psychological behaviour frequently influences outcomes and returns.
- The broader aim of behavioural finance classification is to understand why individuals make specific financial decisions and how these choices impact market dynamics.
- Behavioural finance assumes that investors are not entirely rational or consistently self-disciplined.
- Instead, individuals display psychological influences alongside relatively normal and moderately self-controlling behaviours.
- Financial decision-making often depends on both mental and physical health.
- When an investor’s health improves, their mental clarity typically strengthens, resulting in more rational financial choices.
- Conversely, a decline in health can lead to poorer judgment and less consistent decision-making across all real-world matters, including financial ones.
Key Concepts in Behavioural Finance Theory:
| Bias | Description | Real-World Impact |
|---|---|---|
| Anchoring Bias | Relying heavily on the first piece of info | E.g., setting product price too high |
| Loss Aversion | Avoiding losses at all costs | Holding onto bad investments |
| Herd Mentality | Copying others without their own analysis | Buying when everyone is buying |
| Overconfidence | Overestimating own knowledge | Excessive risk-taking in stock trading |
How to Apply Behavioural Finance in Real Life
A client we once advised—an SME owner in Pune—had invested in a marketing tool that was underperforming. Even after three months of poor ROI, they refused to cancel the subscription.
Why?
Because they had already spent ₹20,000 and felt it would be a waste to stop now.
Behavioural finance emerged to explain exactly this: why rational financial models fail when applied to real human behaviour. And it’s helping businesses, from solo entrepreneurs to Fortune 500s, correct those instincts.
Even product sales teams fall prey. When launching a new item, anchoring can cause businesses to price too high based on competitor pricing, rather than actual demand and perception.
Turning Psychology into Profit: A Step-by-Step Guide
In 2025, financial markets experienced a prolonged bear phase that noticeably affected investor confidence and overall market stability.
This shift raised fresh concerns about speculative behaviour and the spread of misinformation during uncertain times.
So, how do you put these insights into practice?
Here’s a framework:
- Recognise the Bias
- Keep a decision log. Write down why you’re making a financial choice.
- Revisit it after a month to spot patterns in logic versus emotion.
- Use Framing to Your Advantage
- Frame product pricing as savings rather than costs.
E.g., Instead of “₹100 off”, say “Save ₹100 today only”.
- Apply Behavioural Nudges in Product Sales
| Technique | How It Works | Application in Sales |
|---|---|---|
| Scarcity | Highlight limited availability | “Only 2 left in stock!” |
| Social Proof | Showcase testimonials, ratings, or usage data | “Used by 20,000+ customers” |
| Defaults | Pre-select popular options | “Best Seller” tag on recommended plans |
- Train with Behavioural Finance Knowledge
- Courses like the ACCA course integrate behavioural modules into financial planning, helping you make informed, emotionally intelligent decisions.
Key Biases and Business Outcomes
Think about your last three money decisions. Did you really compare the alternatives? Or did you follow a gut feeling, a flashy deal, or a friend’s advice?
Understanding behavioural finance doesn’t just help you make smarter investments. It rewires your thinking to approach product sales, budgeting, and even personal goals with more clarity and discipline.
It’s not magic. It’s psychology—with data.
| Behavioural Bias | Description | Business Impact |
|---|---|---|
| Loss Aversion | Fearing losses more than valuing gains | Delayed exits from bad projects |
| Anchoring | Fixating on initial information | Inflated product pricing |
| Herd Behaviour | Following the crowd blindly | Poor stock timing decisions |
| Status Quo Bias | Sticking to existing choices | Low adoption of new tools |
Ready to align your financial choices with real-world outcomes—minus the bias? Whether you’re looking to boost product sales or make better investment calls, understanding the psychology behind money is your edge.
Take the next step with Imarticus Learning and explore how an ACCA course can build your knowledge of behavioural finance, one smart decision at a time.
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The Association of Chartered Certified Accountants (ACCA) is one of the largest and most respected accountancy membership bodies in the world. In over 180 countries, the ACCA qualification represents a worldwide standard for accounting, audit, and finance. The programme is the first structured course in the field and consists of three primary parts. Knowledge, Skill, and Professional.
It allows professionals to enter and work in taxation, auditing, corporate finance, investment banking, forensic auditing, and consulting. Because the qualification is well recognised internationally, professionals can open doors to top jobs in big financial centers everywhere. At Imarticus Learning, students get both expertise and hands-on experience important for their careers and industry.
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FAQ
- What is behavioural finance?
Behavioural finance looks at the role of human emotions in shaping decisions made in financial markets. - How does behavioural finance theory affect product sales?
It explains buyer behaviours like loss aversion and anchoring, which businesses can leverage for effective pricing and promotions. - Why do people make irrational financial choices?
Due to cognitive biases like herd mentality, overconfidence, and emotional decision-making. - How can I apply behavioural finance in my business?
As a result, when people are influenced by group thinking, they take too many risks or make decisions emotionally. - Is behavioural finance part of the ACCA course?
You can use framing, driving demand with scarcity, and anchoring your offerings in your selling and pricing. - What’s the difference between traditional and behavioural finance?
Traditional finance assumes rational decisions; behavioural finance incorporates psychological biases. - What are some examples of behavioural biases in finance?
Anchoring to a past stock price, fearing small losses, or mimicking market trends without analysis.
