What is Behavioral Finance and why does it exist?
a. Behavioral Finance is the set of investment strategies designed to take advantage of and profit from other peoples’ mental mistakes in the stock market.
b. Behavioral Finance is a set of theories, concepts, and terms that try to explain the types of mistakes that investors make and it exists mainly because Traditional Finance theories have not been able to reliably explain all observed or actual market behavior, especially where asset prices diverge significantly from fundamental values.
c. Behavioral Finance is the set of investment management rules designed to control the financial behavior of money managers, investment advisors, and other fiduciaries, keeping them honest and fair when managing other investors’ funds.