Cognitive Biases in Behavioral Finance

Hindsight Bias

Guest Post:

Many concepts in finance and economics are predicated on markets behaving rationally. Unfortunately for economists everywhere, humans can often behave irrationally, thus ruining many predictive models. In response to this apparent failing in what is called the “efficient market hypothesis,” a segment of economics called behavioral finance has emerged in order to explain why irrational behavior happens. Behavioral finance is an intersection of psychology and economics that studies why people behave the way they do when it comes to finances, risk, and other topics. Continue reading “Cognitive Biases in Behavioral Finance”

Investments Check ! some book rules

Its is just the beginning of the year 2013 and many of you would start investing and many would recheck their portfolios OTCjust a human tendency . The field of behavioral finance has helped us to understand that we don’t always make rational investment decisions. We often make poor decisions because of our biases. And the designers of structured product are well aware of these “flaws” in investor behavior. So they structure products that exploit our flaws.

Few points to be taken in to account :-

Efficient Market Hypothesis & the rise of Behavioral Economics

I put some thoughts on this topic few months back EFFICIENT MARKET HYPOTHESIS .

One of the major philosophical takeaways from the past 15 years has been the failures of the Efficient Market Hypothesis and the rise of Behavioral Economics. Consider, as a corollary, the argument assumption that many pro Free Market folks make: Markets are much more effective, efficient and productive than government mandates or regulations.

I do not disagree with that view. However, every now and again, Continue reading “Efficient Market Hypothesis & the rise of Behavioral Economics”

Doing an investment : some basics to check

As I did a story few days back  When to sell and When to buy ?     trying to recollect the  some book rules for Investments that holds true in many adverse scenarios.

As all of you must be aware of that the field of behavioral finance has helped us to understand that we don’t always make rational investment decisions.We often make poor decisions because of our biases. And the Continue reading “Doing an investment : some basics to check”