Behavioural Finance can offer both fascinating and yet at the same time confusing insights into the dramatic effect our emotions can have on the way we make investment decisions.

Conventional finance theories argue that individuals act logically and consider all available information in their investment decisions. Unfortunately though, it’s a theory that does not stand the test of investing in reality.

In fact, studies have found that people tend to make investment decisions without considering all implications and that we are all prone to psychological biases by virtue of the simple fact that we’re human.

In this context, Behavioural Finance can offer both fascinating and yet at the same time confusing insights into the human psychology. Confusing because the literature is full of definitions and wording that might not be clear to investors with no Behavioural Finance background.

That’s why we hope you enjoy our Jargon Busting series which is meant to ‘un-confuse’ the confusing and illustrate the dramatic effect our emotions can have on the way we make investment decisions.

Action Bias

Halo Effect

Narrow Framing

Herding