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M Preethi Bhavani
G Shravya Reddy
B Rajesh Reddy
What is Behavioral Finance?
A field of finance that proposes
psychology-based theories to
explain stock market anomalies.
Within behavioral finance, it is
assumed that the information
structure and the characteristics
of market participants
individuals' investment decisions
as well as market outcomes.
AVERSION TO AMBIGUITY
In decision theory and economics, ambiguity
aversion also known as uncertainty aversion
describes a preference for known risks over
An economic concept
established by economist
Richard Thaler, which
contends that individuals
divide their current and
future assets into separate,
The theory purports
individuals assign different
levels of utility to each
asset group, which affects
decisions and other
Framing is a cognitive heuristic in which people
tend to reach conclusions based on the 'framework'
within which a situation was presented.
The giving of preference
by decision makers to information and events that
are more recent, that were observed personally, and
were more memorable. This is because memorable
events tend to be more magnified and are likely to
cause an emotional reaction.
In psychology and cognitive
bias (or confirmatory bias)
is a tendency to search for or
interpret information in a
way that confirms one's
preconceptions, leading to
The use of irrelevant information as a reference for evaluating
or estimating some unknown value or information.
In this type, people stick to initial information and won’t let it
go. They even do not want to accept new information.
Natural inability to cognitively process and evaluate
probability and ratios is called innumeracy bias.
Difficulty in evaluation of ratios and probabilities.
When an individual erroneously
believes that the onset of a certain
random event is less likely to happen
following an event or a series of
This line of thinking is incorrect
because past events do not change
the probability that certain events
will occur in the future.
A psychological phenomenon in which past events seem to
be more prominent than they appeared while they were
A tendency to think that one would have known actual events
were coming before they happened.
SELF ATTRIBUTION BIAS
Self-attribution bias occurs
when people attribute
successful outcomes to their
own skill but blame
unsuccessful outcomes on
It is the tendency for
individuals to mimic the
actions of a larger group.
Individually, most people
would not necessarily make the
same choice. This is called
A Representativeness Bias is a cognitive
bias in which an individual categorizes a
situation based on a pattern of previous
experiences or beliefs about the scenario.
It can be useful when trying to make a
quick decision but it can also be limiting
because it leads to close-mindedness.
Client Age Investmen
42 23 Retire
60+ 30 Stable
35 30 Save for
have lot of
Buy more at
50 10 Grow
No stock can
fall to zero