What is Behavioral Finance?

Behavioral Finance is the area of research that attempts to understand and explain how reasoning errors
influence investor decisions and market prices.

It offers knowledge about the behavior of investors, both professionals and amateurs, including wants,
shortcuts, and errors, and it offers knowledge about the behavior of markets.

It also defies the traditional assumptions of these models and studies the behavioral perspective of
financial decision making. This study enables you to identify the different biases present in most
decisions. Overcoming these biases will help you make rational decisions that result in optimal
outcomes. This course introduces traditional behavioral finance theories. You will explore the different
behavioral biases of decision making and also review the steps involved in the decision-making process.
These steps will help you make rational decision that are free from biases.

Why there is a need for you to study the behavior of the people in dealing with their finances? Discuss

Today, many consumers have little understanding of finances. In fact, a lack of financial understanding
may underscore why many people struggles with saving and investing. From budgeting to personal
financial management, financial literacy is the ability to understand and apply various financial skills.
Financial literacy is important for many reasons. One main reason is that financial responsibility is
increasing. Today, many people must manage their retirement accounts, student debt, mortgage debt,
and online trading accounts, among others. A lack of financial literacy affects people in advanced
economies as well as economically emerging or developing economies. Financial literacy is important
not only because financial literacy provides a foundation for informed financial decision-making, but
because financial responsibility is increasing. In the past, for instance, employers would manage
employees' retirement accounts. Today, the individual assumes more of this responsibility via self-
directed retirement accounts. In addition, the scope of financial products has broadened and credit is
more widely accessible, placing more choices in the hands of consumers.