Behavioral finance principles can impact investment decisions from "summary" of Institutional Investment Management by Frank J. Fabozzi
Behavioral finance principles are crucial in the field of investment management as they shed light on how human behavior and psychological factors can influence investment decisions. Investors may not always make rational decisions based on available information and may be influenced by emotions, biases, and cognitive errors. These psychological factors can lead to deviations from traditional finance theory, which assumes that investors are rational and make decisions solely based on maximizing returns and minimizing risks. One key concept in behavioral finance is the idea of heuristics, or mental shortcuts, that investors use to make decisions quickly and efficiently. These heuristics can lead to biases such as overconfidence, anchoring, and herding behavior, which can impact investment decisions. For example, overconfidence bias may cause investors to overestimate their ability to predict future market movements, leading to excessi...
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