Decision Making, Belief and Behavioural Biases

Abstract

Behavioural finance theories explain "why" individuals exhibit behaviours that do not maximize expected utility. Behavioural finance highlights inefficiencies, such as under- or over-reactions to information, as causes of market trends and, in extreme cases, of bubbles and crashes. Such reactions have been attributed to limited investor attention, overconfidence, over optimism, mimicry (herding instinct) and noise trading. Technical analysts consider behavioural finance to be behavioural economics' "academic cousin" and the theoretical basis for technical analysis.

This research work establishes a relationship between Decision Making, Beliefs and how cognitive behavioural biases affect or inter relate with one another.

Keywords: Behaviour Finance, Cognitive Bias, Financial Risk Tolerance, Investor Rationality

JEL Classification: G02, G01, G14