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Behavioral Finance definition

The frequency of market bubbles, panics and crashes exceed what we predict statistically, but market participants are human after all.

Beginner

Behavioral finance is the study of human psychology as it relates to financial decision-making. Many findings from the study of behavioral finance indicate that investors do not behave rationally. Rational behavior is a key assumption of Modern Portfolio Theory (MPT) and the Efficient Market Hypothesis (EMH).

Synonym: behavioural finance


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Quiz

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Which noted scholar in behavioral finance explained synthetic CDOs with Selena Gomez in a cameo for the film The Big Short (2015)? | Daniel Kahneman, Robert Shiller or Richard Thaler?

Richard Thaler

In a Sentence

Zoe:  Should I use the American spelling of Behavioral Finance  or the British one?
Kay:  Only 36% of Americans have passports. Know your audience. Go with behavioral.

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Keywords:
behavioral finance
investor psychology
stocks
Modern Portfolio Theory
Efficient Market Hypothesis
momentum
trading
market