Behavioral decision making in

financial markets – an
exploration
Presented By: Ishani Gupta
Nivedita Pandey
Ayushi Saxna
Akshay Gaur
Drishti Khandelwal
Archi Patwa
INTRODUCTION:
• Behavioral Finance is the study of the
influence of psychology on the behavior
of investors or financial analysts.

For better understanding we look

1.Traditional Finance Theory
2.Behavorial Finance Theory
 • There are three sub fields to modern
financial research.
Theoretical finance: is the study of
logical relationships among assets.
BEHAVIORAL
Empirical finance: deals with the
FINANCE: study of data in order to infer
INTRODUCTION relationships.
Behavioral finance: integrates
psychology into the investment
process.
 TYPES OF
INVESTORS
• Because the market's behavior is impacted and
determined by how individuals perceive that
behavior, investor psychology and sentiments
are fundamental to whether the market will rise
or fall.
• Stock market performance and investor
psychology are mutually dependent.
• Bull Investor
• Bear Investor
• Savers
• Speculators
• Specialists
 ESTABLISHING A LINK BETWEEN RISK TOLERANCE,
INVESTORS PERSONALITY AND BEHAVIORAL
FINANCE BIAS
Risk Level Investor Personality Behavioural Finance Bias

Low Risk Conservative Loss Aversion

Low Risk Conservative Mental Accounting
Medium Risk Conservative Anchoring
Medium Risk Moderate Regret Aversion
Medium Risk Moderate to Growth Representativeness
Medium Risk Moderate to Growth Overconfidence
Medium Risk Moderate to Growth Gamblers Fallacy
Medium Risk Moderate to Growth Availability Bias
High Risk Aggressive Self Control
ESTABLISHING A LINK BETWEEN RISK
TOLERANCE, INVESTORS PERSONALITY AND
BEHAVIORAL FINANCE BIAS
DECISION ERROR

Decision
Error

Cognitive & Social

Emotional Interaction
Bias & News
COGNITIVE & EMOTIONAL BIAS

• Cognitive Bias : systematic error in

thinking
that affects the decisions and
judgments that people make
• Emotional Bias : An emotional
bias is a distortion in cognition and
decision making due
to emotional factors.
 Social Interaction & News : This
1factor have direct relation with
risk and trust.
Social
1. Non Optimal Decision due to
Interaction Judgement Bias
& News 2. Non Optimal Decision due to
Task
3.Estimation and perception of risk
4.Self Motivation and Risk taking
Case Study
Conclusion