Behavioral

Finance
Reporter: Princess Joy A. Borang

Submitted to: Mr. Freddy Casas

Navarro, CMITAP, MBA
Week 4-6: Unit Learning Outcomes
(ULO): At the end of the unit, you are
expected to:
• classify numerous Psychological Biases in
Financial Investment Behavior, and their
consequences for investors' financial
investment decisions.
• analyze different Value Investment Compliance
Hurdles.

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Psychological Biases

• It is the tendency to make • Moreover, researchers have

decisions or take action an studied financial behavior
illogical way. It is the factors and their influence on
opposite of common sense, financial decision making
clear and measured such as psychological biases,
judgement. It can lead to socio-demographic factor,
missed opportunities and investor personality type,
poor investment decision risk-taking culture, etc.
making. • Two-well known Israeli-
• In the content of the psychologist, Kahneman and
sophistication of financial Tversky have played a very
relationship, investment important role in developing
alternatives, risk and theories and discovering
recurrent recent financial psychological biases in the
crises, human factor has field and great number
become increasingly researchers have contributed
important in investor to their theoretical and
decision making. empirical findings.

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 Psychological Biases
It is an investors’ way of thinking and feeling that affects the behavior of an individual. It is known as psychological or
behavioral biases that affect all investors and vary depending on the investors’ nature. The two other biases are;
gamblers’ fallacy, overconfidence loss aversion, regrets aversion, and mental accounting. According to the above
classification, we present the psychological biases categorized by; Heuristics, Perspective Theory, and Herding Effect.

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Biases based on Heuristics
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