Why Do We Let Emotions Drive Our Investment Decisions?
Emotions & Investment Decisions: There is a connection
Investing is often perceived as a game of numbers, data, and cold, hard logic. Yet, the reality is far more complex. Human emotions and psychological biases play a significant role in shaping investment decisions. This intersection of psychology and finance is known as behavioral finance. Let's delve into how behavioral finance influences investment choices and how understanding it can lead to better financial decisions.
Behavioral finance is a field that merges principles from psychology and economics to explain why people make irrational financial decisions. Traditional finance theory assumes that individuals are rational actors who make decisions based solely on logic and available information. However, behavioral finance recognizes that emotions, cognitive errors, and biases often drive human behavior, leading to irrational decision-making.
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