Question

What can behavioural finance teach us about finance?

you have to edit the attached research paper and prepare a wiki on the same topic in your own words.

What can behavioural finance.pdf

Answer 1

Hi.

No pdf is available to edit research paper.I shall prepare a small write up on what behavioural finance teaches.

In an ideal market, buyers and sellers are expected act as rational beings and to make decisions that maximize their returns. This is what is expected in a ideal market irrespective of the age/behavioural characteristics/geographical difference etc of the participants in the market. But this is not how all the participants act in a real life scenario. Behaviours and reactions of participants differ from one age group to another, one geography to another, from one nature of individual (entrepreneur or not) to another, from one financial background to another etc. These differences in the environmental and personal factors of the participants influence their risk taking willingness and ability making it difficult for them to act as rational financial markets participants. There have been multiple researches done in this field to arrive at different theories on how to generalize and arrive at reasoning to different human reactions. The biggest proof of the necessity of understanding and studying behavioral finance are the different biases we see in the financial market like status quo bias, calender bias, confirmation bias, knowledge bias etc. Some of these biases are cognitive in nature and others emotional. Studying and understanding the various biases that exist in the market through behavioural finance helps participants and analysts to better judge the trends that exists in the market and thus take proper action to maximize the earnings or at least avoid huge losses.