{"id":44039,"date":"2023-01-15T22:30:00","date_gmt":"2023-01-15T22:30:00","guid":{"rendered":"https:\/\/businessyield.com\/?p=44039"},"modified":"2023-02-07T14:48:57","modified_gmt":"2023-02-07T14:48:57","slug":"behavioral-finance","status":"publish","type":"post","link":"https:\/\/businessyield.com\/business-coaching\/behavioral-finance\/","title":{"rendered":"BEHAVIORAL FINANCE: Meaning, Examples & Guide","gt_translate_keys":[{"key":"rendered","format":"text"}]},"content":{"rendered":"\n
You will learn more about behavioral finance in this post, including its biases, examples, and importance. Let’s clarify these two terms, behavioral and finance, before moving on.<\/p>\n\n\n\n
Behavioral, also known as behavior, is an act by which a person, animal, plant, or chemical reacts toward something or people in a particular situation.<\/p>\n\n\n\n
Finance, is a fund, money available to a person or organization or a country to run a business, activity, or project. Or the management of the money and the financial economy as a whole in the USA or the world as large.<\/p>\n\n\n\n
Behavioral finance is also known as the psychology of investing. It is the study of psychological effects on investors or individuals and the financial economy or markets as a whole.<\/p>\n\n\n\n
Behavioral finance is a study that explains the effects of psychological theories based on investors and their rational decisions, market outcomes, and anomalies. It explains in the real world how financial decisions made by decision-makers might not be rational every time and can cause unpredictable consequences. It also allows the investors to know that they have limits on their emotions, assumptions, and perceptions.<\/p>\n\n\n\n
Behavioral finance was derived from the subfield of behavioral economics, which is also a subfield of traditional economics; that is, the coming together of economics, finance, and psychology to form behavioral economics.<\/p>\n\n\n\n
The people who started behavioral finance in the 1980s were Amos Tversky and Daniel Kahneman, who were finance theorists and developed the behavioral finance theory together with Richard Thaler, Hersh Shefrin, Werner De Bondt, Robert J. Shiller, and Dan Ariely. They apply prospect theory to financial markets<\/a> in different years.<\/p>\n\n\n\n These behavioral finance biases are also examples of behavioral finance. They are the effects that affect the financial economy and individuals psychologically in the way they make their decisions. Knowing the biases of behavioral finance helps us to know how we spend our money and invest, how to overcome them, and how to make better financial decisions. Here is the basic concept of biases below with some other biases.<\/p>\n\n\n\n It is a bias whereby investors avoid losses rather than gains. People think and are more sensitive to losing than gaining, and they make decisions concerning the loss, either by forgetting or by making fewer decisions for the gain. This is why some people save rather than invest; they have a fear of taking small risks.<\/p>\n\n\n\nBehavioral Finance Biases<\/span><\/h2>\n\n\n\n
Read also: Finacial Management<\/a><\/span><\/h5>\n\n\n\n
#1. Loss Aversion<\/span><\/h3>\n\n\n\n