The role of behavioral finance in investment decision-making.

[Johnson2468]

Behavioral finance is the study of how human behavior affects financial decision-making. In the world of investing, understanding behavioral finance can help investors make better decisions by recognizing the biases and emotions that can cloud judgment.The concept of loss aversion, which contends that people are more driven by the possibility of profit than they are by the fear of losing money, is one of the central ideas in behavioral finance. Due to their fear of losing earnings, investors may cling onto lost investments for an excessively long time in the hopes that they will turn around, or they may sell winning investments too fast. Aside from confirmation bias and herding tendency, other biases can also influence investment choices. Investors can make better logical and well-informed decisions by being aware of these biases and identifying them in their own decision-making.