Faculty Of Business And Economics Business and Administration

Master Program Of Business Administration

Managerial Finance

“ Behavioral finance”

supervised by: D.r Tariq Ashour

student name: Bahya Mustafa
student number:1185482

Hand In Date:25-7-2020
Introduction:

The study of such psychological influences on investors and markets, is called

behavioral finance, where it shows evidence of people’s capacities, attitudes,
perceptions, biases, and preferences playing a major role during financial
judgments and decisions, scientists include psychology and sociology as well in
understanding the financial decisions.as a sub-field of behavioral economics,
where the financial behavior proposes that psychological influences and biases
affect the financial behaviors of investors and financial practitioners. it includes
individual and group emotion, and behavior in the market.

Behavioral finance focuses on how psychological influences can affect market

outcomes, it can be analyzed to understand different outcomes across a variety of
sectors and industries. Understanding and analyzing behavioral finance guides
people to avoid emotions- driven speculation, act irrational, lose self-control on
taking risks without giving deeper thinking and making decisions based on
personal biases than facts. that leads to losses in making financial investment
decisions, as a result, it will drive the best wealth management. Four main concepts
to behavioral finance: Mental accounting, Herd behavior, Anchoring, and High
self-rating.
Behavioral finance vs traditional finance

Behavioral traditional

Investors are treated as rational market and investors are perfectly

rational
Investors have limits to their self-control Investors have perfect self-control
Investors make cognitive errors that can Investors are not confused by cognitive
lead to wrong decisions errors or information processing errors
Investors are influenced by their own Investors truly care about utilitarian
biases characteristics

References:

 Behavioral Finance - Overview, Examples and Guide. (2019, November 19). Retrieved
July 25, 2020, from https://corporatefinanceinstitute.com/resources/knowledge/trading-
investing/behavioral-finance/

 Kenton, W. (2020, July 14). Behavioral Finance Definition. Retrieved July 25, 2020,
from https://www.investopedia.com/terms/b/behavioralfinance.asp