We teach finance basics.
Hi I’m your host Rayfil Wong.
Todays topic, what is Behavioral Finance?
Behavioral Finance is simply the psychology-based theories as a tool to analyze stock market and investing decisions.
Basically trying to make sense with explanations for consumer and investor behavior that don’t seem normal.
For instance, let’s take Jane here.
She received her new credit card in the mail. She is super excited.
Even though she is unemployed and in debt, Jane buys a new dress with her credit card.
Jane continues to use his credit card to spend more than she can afford.
After all she has no job.
But Jane is some kind of eternal optimist and believes that in the future she will be at a great position to pay off her debt.
Unfortunately Jane is unable to make her credit card payments on time and hier account is sent to a collection agency.
Here. Take another example.
This time in the markets is when investors come to “Herd Instinct”, market is moving up or down, investors tend to develop a fear of missing out on important knowledge about a stock.
They buy on the hype for instance of a popular coffee chain. These investors are tend to follow the herd and buy or sell certain stock when it is most popular to do so.
One of the most infamous examples of “Herd Instinct” is the .COM boom and resulted the burt of the tech bubble of the early 2000.
Our tips is to first understand your financial situation, understand the psychology behind consumer and investing behavior so that you don’t get into financial doom.
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Professor Savings signing off.