Finance glossary
Behavioral Finance
Definition
The study of how psychology affects financial decisions.
Behavioral finance examines how cognitive biases and emotions lead investors to act irrationally, challenging the assumption of perfectly rational markets. It explains bubbles, panics, and persistent mistakes, and earned Daniel Kahneman and Richard Thaler Nobel Prizes.
In a sentence
Behavioral finance explains why investors panic-sell at the bottom even when it makes no rational sense.
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