Behavioral finance
TheoryDefinition
Field that integrates psychology with economics to explain why investors systematically deviate from "rational" behavior. Pioneered by Daniel Kahneman and Amos Tversky (Nobel 2002 to Kahneman) and Richard Thaler (Nobel 2017).
Key biases: loss aversion (losses hurt ~2x more than equal gains feel good), anchoring (over-weighting first piece of info), confirmation bias, recency bias, herding, overconfidence. Markets are populated by humans → these biases create persistent, exploitable mispricings.
Key biases: loss aversion (losses hurt ~2x more than equal gains feel good), anchoring (over-weighting first piece of info), confirmation bias, recency bias, herding, overconfidence. Markets are populated by humans → these biases create persistent, exploitable mispricings.