What is Behavioral Finance?
The concept of behavioral finance has to do with taking into consideration a range of psychological variables and how the resulting emotional reactions of these variables can impact both personal and general economic conditions. Closely associated with behavioral economics, the concept seeks to explain what occurs when emotional responses are involved in decisions that impact the stock market and the prices of individual stocks, market prices in selected markets, and the allocation of financial resources in both savings and spending habits. Here are some examples of the types of factors that are normally taken into account by behavioral finance theorists. There are three generally accepted factors that come into the research and identification of behavioral variables as they are related to the study of behavioral finance. One factor is referred to as heuristics. The idea here is that investors may choose to make economic decisions based on some type of personal set of ideas or values t
