BEHAVIORAL FINANCE: Exploring the Interaction of Psychology, Finance, and Sociology in Decision Making, and how People make Irrational Financial Decisions

Summary

For a good reason, the era we live in is dubbed the "Information Age." People have never had such rapid and simple access to so much information. The availability of so much information may appear useful to us in becoming informed and making good decisions. Still, the availability of so much information does not necessarily make us knowledgeable.

In recent years, finance has witnessed the birth of a new way of thinking about financial decision-making that considers the investor's psychology — heuristics, biases, emotions, fears, and fallacies – to make sense of investor decision-making. Behavioral finance is a relatively recent area that has entered the debate as an alternative method to working with emotion and decision-making. It defects our understanding of how they inhibit us from reaching optimal investment outcomes and how they may be performed to optimize the results.