A comprehensive study of how psychological factors and biases influence financial decisions and market outcomes.
Bias refers to a systematic deviation or prejudice in judgment that can impact decision-making, sampling, forecasting, and estimations. This term is significant in fields like Behavioral Finance, Statistics, Psychology, and Sociology.
Understanding how emotions can influence investment decisions and the impact it has on financial outcomes.
The Fear of Missing Out (FOMO) drives decision-making in crucial areas, particularly in finance and investments, where the fear of missing potential gains outweighs the risks involved.
Understanding the phenomenon where investors mimic the actions of the majority, often leading to irrational market behavior.
Herd mentality refers to the phenomenon where individuals in a group act collectively without centralized direction. In finance, it describes how investors behave similarly and follow each other, often ignoring their own analysis in favor of the popular trend.
The tendency of investors to follow others’ actions, often leading to or exacerbating market anomalies and amplification of bubbles.
Herding Behavior in finance describes the tendency of investors to follow and mimic the actions of a larger group, often ignoring their own individual analysis and decision-making processes. This behavior can significantly impact financial markets, leading to price fluctuations and contributing to market bubbles and crashes.
An assumption on the rate of time preference that reflects a bias towards present rewards. Hyperbolic discounting contrasts with exponential discounting where the discount rate between any two periods is constant.
Investor sentiment refers to the overall attitude of investors toward market conditions, which can significantly impact the behavior of financial markets. This entry explores its definitions, types, measurements, and implications.
Market Psychology refers to the collective sentiment of market participants, which can drive stock or commodity prices irrationally higher or lower. This concept is crucial in understanding behavioral finance and market trends.
An in-depth analysis of market sentiment and market psychology, their differences, impacts, and applications in financial markets.
Exploring the Cognitive Bias Where Individuals Overestimate the Likelihood of Positive Events and Underestimate the Potential for Negative Events.
An exploration of Rank Dependent Expected Utility Theory, its historical context, mathematical framework, applications, and relevance in addressing anomalies in traditional expected utility theory.
Self-fulfilling expectations are a fascinating economic phenomenon where people's beliefs about the future cause actions that bring those beliefs to fruition, particularly impacting market prices and behaviors.
A comprehensive comparison between Traditional Finance which assumes rational behavior and market efficiency, and Behavioral Finance which accounts for irrational behavior driven by psychological factors.
The Bigger Fool Theory, also known as the Greater Fool Theory, is a financial concept that describes the behavior of investors who buy overvalued assets with the hope of selling them at a profit to someone else (the 'greater fool').
The Hemline Theory is a whimsical and often speculative concept suggesting that stock prices move in the same general direction as the hemlines of women's dresses. It posits that short skirts are bullish indicators while longer dresses signify bearish trends.
Precautionary Motive refers to actions taken to prevent adverse outcomes. This term is often used within various fields such as economics, finance, and everyday life to describe actions motivated by the desire to mitigate risks.
An in-depth exploration of behavioral finance, examining how psychological biases, emotions, and cognitive errors influence financial markets and investor behavior.
An in-depth analysis of the Endowment Effect, an emotional bias where people value owned objects more highly than their market value. Learn about the causes, implications, and examples of this phenomenon.
Explore the phenomenon of hindsight bias, its causes, real-world examples, and answers to frequently asked questions. Learn why it is crucial for investors and others to recognize and mitigate its effects.
An in-depth look at home bias, its impact on investment portfolios, and special considerations for investors.
The House Money Effect is a behavioral finance phenomenon where investors take on higher risks when trading with profits from previous transactions. Learn the meaning, see examples, and find answers to common questions.
Explore the economic theory of money illusion, which posits that people tend to assess their wealth and income in nominal terms without accounting for inflation. Delve into its historical background, relevant examples, and implications.
An in-depth understanding of Noise Traders, their behaviors, and their impact on financial markets. This entry covers the various characteristics, implications, and related concepts such as technical trading and market efficiency.
Explore the concept of overreaction in financial markets, detailing its definition, underlying mechanisms, and providing illustrative examples.
