Individuals often make irrational financial decisions from "summary" of Advances in Behavioral Finance by Richard H. Thaler
In the realm of finance, individuals frequently exhibit behaviors that deviate from the rational decision-making model traditionally assumed by economists. These deviations, often referred to as irrational financial decisions, have been a subject of increasing interest among researchers in the field of behavioral finance. This branch of finance seeks to understand how psychological factors influence the financial choices made by individuals, leading to outcomes that may not align with traditional economic theory. One of the key insights from behavioral finance is that individuals often make decisions based on emotions, biases, and cognitive limitations rather than purely on rational analysis of available information. For example, people may exhibit overconfidence in their ability to predict the market, leading them to take on excessive risks in their investments. This overconfidence can stem from a variety of cognitive biases, such as the tendency to rely on anecdotal evidence or to ignore in...
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