Behavioral Finance
AAA
  1. Behavioral Finance: Introduction
  2. Behavioral Finance: Background
  3. Behavioral Finance: Anomalies
  4. Behavioral Finance: Key Concepts - Anchoring
  5. Behavioral Finance: Key Concepts - Mental Accounting
  6. Behavioral Finance: Key Concepts - Confirmation and Hindsight Bias
  7. Behavioral Finance: Key Concepts - Gambler's Fallacy
  8. Behavioral Finance: Key Concepts - Herd Behavior
  9. Behavioral Finance: Key Concepts - Overconfidence
  10. Behavioral Finance: Key Concepts - Overreaction and Availability Bias
  11. Behavioral Finance: Key Concepts - Prospect Theory
  12. Behavioral Finance: Conclusion

Behavioral Finance: Introduction

By Albert Phung

According to conventional financial theory, the world and its participants are, for the most part, rational "wealth maximizers". However, there are many instances where emotion and psychology influence our decisions, causing us to behave in unpredictable or irrational ways.

Behavioral finance is a relatively new field that seeks to combine behavioral and cognitive psychological theory with conventional economics and finance to provide explanations for why people make irrational financial decisions.

By the end of this tutorial, we hope that you'll have a better understanding of some of the anomalies (i.e., irregularities) that conventional financial theories have failed to explain. In addition, we hope you gain insight into some of the underlying reasons and biases that cause some people to behave irrationally (and often against their best interests). Hopefully, this newfound knowledge will give you an edge when it comes to making financial decisions.

(For related reading, see Taking A Chance Of Behavioral Finance and Leading Indicators Of Behavioral Finance.)

Behavioral Finance: Background

  1. Behavioral Finance: Introduction
  2. Behavioral Finance: Background
  3. Behavioral Finance: Anomalies
  4. Behavioral Finance: Key Concepts - Anchoring
  5. Behavioral Finance: Key Concepts - Mental Accounting
  6. Behavioral Finance: Key Concepts - Confirmation and Hindsight Bias
  7. Behavioral Finance: Key Concepts - Gambler's Fallacy
  8. Behavioral Finance: Key Concepts - Herd Behavior
  9. Behavioral Finance: Key Concepts - Overconfidence
  10. Behavioral Finance: Key Concepts - Overreaction and Availability Bias
  11. Behavioral Finance: Key Concepts - Prospect Theory
  12. Behavioral Finance: Conclusion
RELATED TERMS
  1. Premium to Surplus Ratio

    Net premiums written divided by policyholders’ surplus. The premium ...
  2. Current Liquidity

    The total amount of cash and unaffiliated holdings compared to ...
  3. Developed To Net Premiums Earned

    The ratio of developed premiums to net premiums earned over a ...
  4. Return On Policyholder Surplus

    The ratio of an insurance company’s net income to its policyholder ...
  5. Absolute Percentage Growth

    An increase in the value of an asset or account expressed in ...
  6. Capital Loss Coverage Ratio

    The difference between an asset’s book value and the amount received ...
  1. What is the difference between operating income and net income?

    Understand the difference between operating income and net income, including the calculations and interpretations of each ...
  2. What is the difference between operating income and EBITDA?

    Read about the major differences between earnings before interest, taxes, depreciation and amortization (EBITDA) and operating ...
  3. What is the difference between operating income and gross profit?

    Learn more about the difference between operating income and gross profit, two accounting figures that appear on a company's ...
  4. What is the difference between operating income and operating profit?

    Find out why operating margin and operating income can be treated synonymously with EBIT, but how they all differ from operating ...

You May Also Like

Related Tutorials
  1. Investing Basics

    Industry Handbook

  2. Fundamental Analysis

    Ethical Investing Tutorial

  3. Bonds & Fixed Income

    Investing For Safety and Income Tutorial

  4. Fundamental Analysis

    Discounted Cash Flow Analysis

  5. Economics

    American Depositary Receipt Basics

Trading Center