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By Carla SAYAH, INITIO Luxembourg / Groupe Square
Behavioral finance at a glance
Behavioral finance attempts to understand and explain observed investor and market behaviors. This differs from traditional finance, which is based on hypotheses about how investors and markets should behave. In other words, behavioral finance is founded on practical analysis of the market participants’ behaviours, in contrast to traditional finance which is based on theoretical approaches.
Behavioural finance studies individuals’ reactions as well as financial decisions then highlights the human errors committed under different circumstances. It classifies those errors, depending on their cause or source, as cognitive errors or...
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