Abstract
Financial decision making is generally characterized by high degree of risk, uncertainty as well as complexity. Decision making in financial markets takes under consideration a stack of factors including personal, technical and situational factors and above all it necessitates an understanding of human instinct on the top of financial skills. In the broad arena of literature, research studies have proposed two primary themes of decision making-one is the rational approach and the another one is irrational or bounded rationality approach. Rational world presupposes being reasonable in every aspect and making unbiased decisions. Irrationality approach contents that investor behaviour is driven by emotions even if they are well informed. This research paper by using the relevant literature in the field of behavioural decision making and investor psychology, provides an overview of these two distinctive academic doctrines, which clears the way-out that how in actual world people undertake their decision making. Furthermore, this research paper reviews how behavioural biases can lead to errors in investment decision making.
Highlights
Decision-making may be described as a deliberate process of selecting a specific alternative from among the accessible options after conducting appropriate rational evaluation
Financial decision making is often characterized by high degree of uncertainty as well as complexity, CONTACT Azhar Imtiyaz Bisati bisati.azhar@gmail.com Dept. of Commerce, Aligarh Muslim University, Aligarh (U.P), India
In classical era, the decision making was dominated by rationality doctrine encompassing orthodox mechanical thinking
Summary
Decision-making may be described as a deliberate process of selecting a specific alternative from among the accessible options after conducting appropriate rational evaluation. Financial decision making is often characterized by high degree of uncertainty as well as complexity, BISATI et al, Journal of Business Strategy, Finance and Management, Vol 03(1-2) 48-65 (2021). As investors behavior fluctuate from one to other in all facets. In this manner an effective decision making in stock market takes under consideration a stack of factors including personal factors, technical factors and situational factors and requires an understanding of the human nature on top of financial skills. Sanglier et al (1994) illustrates that even if a similar set of information is received by different investors, each investor will have distinct interpretation of the same data These differing interpretations will prompt differentiated investor behaviors which will subsequently impact their decision making in financial markets.
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