PSYCHOLOGY OF BEHAVIORAL FINANCE

Abstract

One of the most critical research programs of today's financial knowledge that is at the top of the rejection of the theory of efficient markets is financial behavior theory. This theory is the result of collaboration between financial sciences and social sciences and makes our knowledge of financial markets deeper. Behavioral finance is a new branch of financial knowledge. Behavioral finance at the macro level challenges classical financial theories, particularly capital efficient market theory. Behavioral finance at the micro level shows that behavior of investors in the real world is incompatible with the fundamental assumption of rationality in classical finance, and cognitive and emotional tendencies or bevels of investors that we called them behavioral biases have an important role in economic decisions making. Behavioral finance of paying attention to the fundamental assumptions of theories in the field of financial economics and capital market like as other branches of the sciences in addition to better understanding and comprehending them, makes our utilization more efficient as a guide in practice. One of the most basic assumptions in valuation of securities and financial products in the stock exchanges is that behavior of investors is rational. This means they seek to maximize their interests, and in addition their response or reaction against the opportunities for taking profit and risk of loss is predictable.