The document discusses behavioral finance, which examines how psychological factors influence investors' decisions and market outcomes. It outlines various cognitive biases such as ambiguity aversion, mental accounting, framing, and herd behavior that can impact investment behavior. Additionally, it provides detailed client profiles with specific investment strategies tailored to their age, objectives, and risk profiles.

1. By,
P Vasavi
B Venkat
M Preethi Bhavani
G Shravya Reddy
B Rajesh Reddy
S Nikhileshwar
P Abhishek
Behavioural Finance

2. 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
systematically influence
individuals' investment decisions
as well as market outcomes.

3. AVERSION TO AMBIGUITY
 In decision theory and economics, ambiguity
aversion also known as uncertainty aversion
describes a preference for known risks over
unknown risks.

4. MENTAL ACCOUNTING
 An economic concept
established by economist
Richard Thaler, which
contends that individuals
divide their current and
future assets into separate,
non-transferable portions.
The theory purports
individuals assign different
levels of utility to each
asset group, which affects
their consumption
decisions and other
behaviors.

5. FRAMING
 Framing is a cognitive heuristic in which people
tend to reach conclusions based on the 'framework'
within which a situation was presented.

6. AVAILABILITY BIAS
 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.

7. CONFIRMATION BIAS
 In psychology and cognitive
science, confirmation
bias (or confirmatory bias)
is a tendency to search for or
interpret information in a
way that confirms one's
preconceptions, leading to
statistical errors.

8. ANCHORING
 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.

9. INNUMERACY BIAS
 Natural inability to cognitively process and evaluate
probability and ratios is called innumeracy bias.
 Difficulty in evaluation of ratios and probabilities.

10. GAMBLERS FALLACY
 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
events.
 This line of thinking is incorrect
because past events do not change
the probability that certain events
will occur in the future.

11. HINDSIGHT BIAS
 A psychological phenomenon in which past events seem to
be more prominent than they appeared while they were
occurring.
 A tendency to think that one would have known actual events
were coming before they happened.

12. SELF ATTRIBUTION BIAS
 Self-attribution bias occurs
when people attribute
successful outcomes to their
own skill but blame
unsuccessful outcomes on
bad luck.

13. HERD BEHAVIOUR
 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
herd behavior

14. REPRESENTATIVE BIAS
 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.

15. Possible
mistakes Rudy’s
clients would
make..

16. Bob Miller
 Illusion of control
 Anchoring

17. Mary Swanson
 Herd Behaviour

18. Jack and Kelly
 Self attribution bias  Self protecting bias

19. Herb and Bark Nichols
 Gamblers Fallacy

20. Client Profiles
Client Age Investmen
t horizon
Objective Risk
profile
Portfolio Advice
Bob
Miller
42 23 Retire
comfortably
at 65
Teacher Growth
70 %equity
30% bonds
No changes
Mary
Swanson
60+ 30 Stable
income
Retired
professor
60 %equity
40%bonds
$1million
5%gold
5%real
estate
Transfer
Jack
&Kelly
Klein
35 30 Save for
retirement
Do not
have lot of
asstes
85%equity
15%bonds
Buy more at
market low
Herb &
Barb
Nichols
50 10 Grow
money
Have
short term
liquidity
needs
$100000
75%equity
25%bonds
No stock can
fall to zero