Behavioural Finance: A Theoretical Perspective

Abstract

Previous theoretical and empirical research in finance were carried out without regard to the human behaviour in financial decision making. However, the intuitive judgement of the investors revealed some shortcomings of such financial decisions, and that the psychology of the investors is very important in financial decisions. This study is carried out to discuss the current state of the literature on behavioural finance with a view to further provide a clear understanding of the subject. This study draws from previous write-ups on the subject and conclude that behavioural finance is important in assissting the alerting and counteracting the investors’ tendencies to bias.