The Art of Behavioral Finance: Understanding Psychology in Investing
Behavioral finance is a field of study that combines psychology and economics to understand how psychological factors influence financial decisions. It seeks to explain why investors often make irrational or suboptimal choices, even when they have access to all the necessary information.
Behavioral finance has shown that investors are often influenced by cognitive biases, emotions, and social factors. For example, investors may be overconfident in their own abilities, they may be too focused on short-term gains, or they may be swayed by the opinions of others. These biases can lead to poor investment decisions, such as buying stocks at inflated prices or selling stocks at a loss.