Behavioural finance (BF) resides at the intersection of economics (markets), finance (investments) and psychology. It studies the impacts of psychological, cognitive, emotional, cultural and social factors on the financial decisions of individuals. It affects every phase of life, from how investment beginners plan their financial projects and future plans, to how retirement-age investors approach a change in strategy with caution.
BF fills the gaps of traditional economics and financial theory by focusing on a better understanding of how humans deal with money and perceive risk. Contrary to the more traditional approach – which assumes that all investors are fully rational and process relevant information equally well – behavioural finance assumes that people act in line with their beliefs, their biases and their personal emotional filters.
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