Name: Abdullah Alsomadani
Subject: Investment
Behavioral Finance
Behavioral Finance is a relatively new field that seeks to combine behavioral and cognitive
psychological theory with conventional economics and finance to provide explanations for why people
make irrational financial decisions.
In other words, Behavioral Finance is the Psychology of Investing. Most of the investors around the
world have the same behavior but there is a small group who really understand those behavior and try to
avoid them. For example, in the financial crises most people they sell their stocks because they are afraid
to loss more money but a few investor who keep fund for emergency will buy the stocks and they fight
against the bears “ the seller”. We call this group who try to buy to protect their costs or stock prices”
Bulls”. The chart below will explain more about the meaning of Behavioral Finance
BEHAVIORAL BIASES
Confirmation bias – The confirmation bias refers to the phenomenon of seeking selective information to
support one’s own opinions or to interpret the facts in a way that suits our own world view. Investors seek
confirmation for their assumptions. They avoid critical opinions and reports, reading only those articles
