Title: An Introduction to Behavioral Finance
Headings: An Introduction to Behavioral Finance
An Introduction to Behavioral Finance
Key Takeaways
Some Findings from Behavioral Finance
The Importance of Losses Versus Significance of Gains
The Herd vs. Self
How Practical Is Behavioral Finance?
Frequently Asked Questions
What does behavioral finance tell us?
How does behavioral finance differ from mainstream financial theory?
How does knowing about behavioral finance help?
The Bottom Line

Content: From this perspective, it's not difficult to imagine the stock market as a person: It has mood swings (and price swings) that can turn on a dime from irritable to euphoric; it can overreact hastily one day and make amends the next. But can human behavior really help us understand financial matters? Does analyzing the mood of the market provide us with any hands-on strategies? Behavioral finance theorists suggest that it can. Key Takeaways
Behavioral finance asserts that rather than being rational and calculating, people often make financial decisions based on emotions and cognitive biases. For instance, investors often hold losing positions rather than feel the pain associated with taking a loss. The instinct to move with the herd explains why investors buy in bull markets and sell in bear markets. Behavioral finance is useful in analyzing market returns in hindsight, but has not yet produced any insights that can help investors develop a strategy that will outperform in the future.