Question

Why do the supporters of behavioral finance suggest that emotions lead to inferior investment decisions?

Why do the supporters of behavioral finance suggest that emotions lead to inferior investment decisions?

Homework Answers

Answer #1

According to behavioral finance, behavior of investors is not always rational, investors show irrational behavior. As human behavior is not always rational and they make mistakes and act irrationally, emotions lead to poor investment decisions.
For example, if an investor is emotionally attached to a particular stock then he/she won't take investment decisions on the stock using fundamental or financial analysis. Investors emotionally attached to some particular stocks invest and trade those particular stocks (without any logic) and often make losses.

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