Question

From your own words: What can behavioural finance teach us about finance?

Answer 1

It is generally believed that investors are rational in nature. It is assumed that the investors have all information about the market and they use all the information for analysis before taking any decision. However, it is seen that the investors behave in a different manner than what is expected from them. Such behavior of the investors may not be explained by behavioral finance. Sometimes behavioral finance is used by the companies to predict the behavior of the investors. Though the use of behavioral finance is for getting better understanding of the market and taking a profitable decision, it has been seen that the application of the concepts of behavioral finance is not being done in the right manner. This happens because there is a strong tendency among the investors to follow the 'herd mentality'.