{"id":255844,"date":"2023-10-12T13:27:59","date_gmt":"2023-10-12T13:27:59","guid":{"rendered":"https:\/\/imarticus.org\/?p=255844"},"modified":"2023-10-12T13:27:59","modified_gmt":"2023-10-12T13:27:59","slug":"a-guide-to-behavioural-finance","status":"publish","type":"post","link":"https:\/\/imarticus.org\/blog\/a-guide-to-behavioural-finance\/","title":{"rendered":"A Guide to Behavioural Finance"},"content":{"rendered":"

Psychological influences often govern financial decisions. Such influences and biases justify the anomalies, such as a tremendous fall in the stock price or severe rises.\u00a0<\/span><\/p>\n

The area of study that proposes how biases and psychological influences affect the financial behaviour of practitioners and investors is known as behavioural finance.<\/span><\/p>\n

Behavioural finance incorporates research and experiments to demonstrate how biases and emotions can be held responsible for share prices. It explains why investors do not always have self-control and are compelled to make decisions based on their biases instead of facts.<\/span><\/p>\n

IIM L finance course<\/a><\/strong> on financial services and capital markets is available online and discusses these concepts in detail. This article will guide you on everything you need to know about behavioural finance.<\/span><\/p>\n

Behavioural Finance vs. Mainstream Financial Theory<\/strong><\/h2>\n

Behavioural finance assumes that individuals participating in financial transactions are irrational about their decisions. Rather, their decisions are psychologically influenced.\u00a0<\/span><\/p>\n

Financial decision-making depends on the mental and physical health of the investors. Their decision may be biased for several reasons. Behavioural finance studies allow a deep understanding of how human emotions influence investments, risks, payments, and personal debts.\u00a0<\/span><\/p>\n

On the other hand, mainstream financial theory assumes that individuals are devoid of human emotions, social relations, and the effects of culture. The mainstream financial theory also assumes that one can earn maximum profits through firms while the markets remain efficient.\u00a0<\/span><\/p>\n

These assumptions are countered by behavioural finance.\u00a0<\/span><\/p>\n

Some Concepts Related to Behavioural Finance<\/strong><\/h2>\n

Five main concepts make up behavioural finance. They are as listed below:\u00a0<\/span><\/p>\n