it comes to money and investing, we're not always as rational as we
think we are - which is why there's a whole field of study that explains
our sometimes-strange behavior. Where do you, as an investor, fit in?
Insight into the theory and findings of behavioral finance may help you answer this question.
Behavioral Finance: Questioning the Rationality Assumption Much
economic theory is based on the belief that individuals behave in a
rational manner and that all existing information is embedded in the
investment process. This assumption is the crux of the efficient market hypothesis. (To read more on behavioral finance, see Working Through The Efficient Market Hypothesis.)
But, researchers questioning this assumption have uncovered
evidence that rational behavior is not always as prevalent as we might
believe. Behavioral finance attempts to understand and explain how human
emotions influence investors in their decision-making process. You'll
be surprised at what they have found.