Emergence of behavioural finance: a study on behavioural biases during investment decision-making

摘要

In the 1950s and 1960s standard finance evolved and thereafter got wide acceptance among academia. However, standard finance paradigm faced difficulties and was questioned, when cracks began to appear due to the growing market inefficiencies and the fact that humans are not always rational. Thus, the inherent flaws in traditional finance led to the emergence of behavioural finance, a new science which is a harmonious blend of research principles derived from subjects like finance, cognitive psychology, and behavioural economics. It propounds psychologically-based theories to illustrate stock market anomalies, its core focus is to study the erroneous or less than perfect human behaviour that influences individual investment decision and its subsequent effect on the market. This paper aims to critically analyse the traditional financial theories, how behavioural finance supplemented these theories by introducing behavioural aspects and also uncovers the psychological impact of individuals on their decision-making behaviour.