Continue reading...When 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 AssumptionMuch 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.
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.
The FactsIn 2001 Dalbar, a financial-services research firm, released a...
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