Behavioral Finance

Definition: Behavioral Finance is the study of the influence of psychology on the behavior of financial practitioners and the subsequent effect on financial markets. The approach focuses on observable psychological factors that influence decision-making of financial decision makers.

Behavioral effects help explain why and how markets might be inefficient. Behavioral finance is contradicting the Efficient Market Hypothesis.

Behavioral finance applies scientific research on human and social Cognitive and Emotional Biases to better understand economic decisions and how they affect market prices, returns and the allocation of resources.

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