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Behavioural Finance

In: Business and Management

Submitted By gaz1234567890
Words 899
Pages 4
1.- Problem statement and motivation
How do Financial Markets participants make decisions? How do these decisions affect the financial markets? With the financial markets in Asia being the largest in the world, such an interesting environment with participants displaying different levels of capitalism, financial market experience and knowledge, Asia is definitely a fertile ground for the study od behavioral finance.
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. Asians in general suffer from cognitive biases, more so than Westerners, often being viewed as ‘Gamblers.
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 .It calls for investigation into higher mental processes, memory, perception, problem solving and thinking .This paper looks at some of the anomalies (i.e., irregularities) that conventional financial theories have failed to explain. In addition, review underlying reasons and biases that cause some people to behave irrationally.
2.- Brief survey of the literature
The following areas of research have been covered, from the mid 1980’s to the main focus of the article(special edition 2008):
Overreaction and Availability Bias, Overconfidence, Cultural difference, Superstition, education and life experience, “house money effect” managerial optimism, collective orientated vs individual dynamic, or Gambler's Fallacy, Trading venue affect, life experience and education, media influence, Herd Behavior, Gender influence and availability heuristic. While...

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