Behavioral Finance
Project 4: Behavioral Finance
• Explain how behavioral finance is different from traditional finance
• Explain how psychology intervenes in behavioral finance
• Explain at least 5 cognitive biases (give example)
• Plain at least 5 emotional biases (give example)
Answer preview
Behavioral finance is the study of finance that seeks to understand the relationship that lies between psychology and money. It is normally observed that people in an economy, seek to make as many profits and wealth as possible. However, market participants may make some decisions that are influenced by their emotions and not what might seem reasonable and the most likely decision that any person would make. Sometimes such decisions have a better outcome than making rational decisions (Cerchiello & Nicola, 2018). Behavioral finance serves to help a financial analyst get a deep understanding of the needs of their clients in an organization. It also sheds light on what a client is looking forward to investing in future, which makes the financing decision makers decide on the areas that…
(1600 words)