BEHAVIORAL BIASES AND INVESTMENT DECISION MAKING: LEARN TO MAKE THE RIGHT CHOICES

Behavioral Finance

Any of the many different circumstances in which certain financial assets abruptly lose a significant portion of their nominal value constitutes a financial crisis. Many financial crises and banking panics coexisted with recessions in the late 19th and early 20th centuries. This includes financial bubbles, currency crises, stock market crashes, and sovereign defaults, among other things. Behavioral finance emerged as a result of the conventional finance's failure to comprehend the stock market's behavior during the bubble and recession phenomena. Behavioral finance is the study of the impact of psychology on financial behavior and the subsequent impact on markets. It seeks to improve our understanding of financial decisions, portfolio diversification, and market prices. In this article, behavioral finance is used as a tool to examine the causes of the financial crisis and the likelihood of preventing the future ones. First, the paper illustrates well-known financial crisis and their causes. Second, the behavioral aspects that contributed to the market turbulence and global financial crisis. Third, the possibility of averting the upcoming ones. The paper concludes by emphasising the importance of incorporating human behavioural biases into our economic and financial theories and regulations in order to improve their effectiveness and reduce financial vulnerability. The study’s findings are critical for individual and institutional investors, advisors and regulatory bodies as they may help investors avoid the psychological traps that come with investing.

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