Behavioural Finance

This book demonstrates the tendency of investors to lean towards non-rational behaviour in their financial decisions in the stock market, contrary to what one would expect from traditional economic theory. The assumption of perfect rationality of economic agents is challenged by the evidence observed in the capital market itself. Attitudes observed in specific stock market situations diverge from the procedure that participants are supposed to adopt according to the principles of conventional economic theory. The presence of psychological biases when decisions are made can cause financial losses. Among such behavioural biases, the book highlights the following: herd behaviour, overconfidence, prospect theory, anchoring, status quo and the ownership effect. The work also points out possible ways to avoid the influence of biases on investor behaviour.