CHANDIGARH UNIVERSITY

DEPARTMENT OF COMMERCE
Bachelors of Commerce
Behavioural Finance (22CMT256)
BY MUKUL [E9048]

Nature, Scope, and

Significance of DISCOVER . LEARN . EMPOWER
Behavioral Finance
 LEARNING OBJECTIVES

Students will Students will

understand the explicate the Key
Key Features of Features of
Behavior Finance. Behavior Finance.

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 Introduction to Behavioral Finance
• Traditional finance theories assume that investors are rational and
make decisions based on all available information.
• Behavioral finance integrates insights from psychology and
economics to understand how individuals make financial decisions.
• It explores the emotional, cognitive, and psychological factors
that influence financial choices.

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Scope of Behavioral Finance
1. Understanding Investor Behavior
2. Market Anomalies
3. Behavioral Biases
4. Portfolio Management

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Significance of Behavioral Finance
• 1. Explains Irrational Behavior: It helps explain why individuals
make seemingly irrational financial decisions.
• 2. Predicts Market Anomalies: It predicts market anomalies that
traditional theories cannot account for.
• 3. Improves Decision-Making: It provides tools and techniques to
improve investment decision-making by recognizing and addressing
biases.
• 4. Enhances Portfolio Performance: Behavioral insights can lead
to more robust portfolio strategies that adapt to changing market
conditions.
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Heuristic Driven Biases - Representative
Bias
Characteristics of Representative Bias:
• 1. Stereotyping: People often make decisions by assuming that
past patterns or stereotypes are representative of the current situation.
• 2. Neglect of Base Rates: They may ignore statistical base rates
and rely heavily on anecdotal or vivid information.
• 3. Overlooking Probabilities: This bias can lead to an
overestimation of the likelihood of an event based on its resemblance
to past instances.

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Assessment Pattern

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 APPLICATIONS
After going through this presentation,
• Students will understand the objectives of spot trading.
• Students will explicate the need for derivative trading.

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 FAQ’S
What is behavioral finance, and how does it differ from traditional
finance theories?
• Behavioral finance is a field that integrates insights from psychology
and economics to understand how individuals make financial
decisions. Unlike traditional finance theories that assume rationality,
behavioral finance recognizes the role of emotions, cognitive biases,
and heuristics in influencing decision-making.
What is the representative bias, and how can it impact investment
choices?
• The representative bias is a cognitive bias where individuals make
judgments or decisions based on stereotypes or past experiences, often
ignoring statistical probabilities. In investments, this bias can lead to
misjudging stock performance or making choices based on superficial
resemblances to past successes. 9
 FAQ’S
How does regret aversion affect decision-making, and what are its
implications in career choices?
• Regret aversion is the tendency to avoid decisions that might lead to
future feelings of regret. It can hinder risk-taking and innovation and
may lead to missed opportunities in career decisions, as individuals
opt for safer choices to avoid potential regrets.
What strategies can be employed to mitigate overconfidence in
investment decisions?
• To mitigate overconfidence, investors can employ data-driven
decision-making, diversification, and seeking external feedback.
Recognizing one's limitations and relying on objective analysis rather
than gut feelings are key to addressing overconfidence bias.
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 FAQ’S
How can ambiguity aversion influence financial decision-making,
especially in uncertain or innovative investment opportunities?
• Ambiguity aversion is the preference for known risks over unknown
risks. In financial decision-making, this bias can lead individuals to
avoid new and innovative investment opportunities with unclear
probabilities, potentially missing out on higher returns. Diversification
and education on risk assessment can help mitigate this bias.

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 REFERENCES
WEBSITES
• https://www.thehindubusinessline.com/economy/budget/ibc-has-changed-the-way-banks-firms-wo
rk-sanyal/article22734332.ece
• https://www.rbi.org.in/Scripts/BS_SpeechesView.aspx?Id=1067
• https://project.inria.fr/IBC/sp2-meeting-in-basel/
• https://www.dnb.com/business-directory/company-profiles.ibc_consulting_ag.8bc0dca5bf2150b05
d178f227c85646e.html
• https://onlinelibrary.wiley.com/doi/abs/10.1002/cfg.80
• BOOKS
• UGC NET TRUE MAN
• UGC NET ARIHANT

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THANK YOU

For queries
Email: mukul.e9048@cumail.in