Emotional Finance Plays an Important Role in Investment Decisions

2021 ◽  
pp. 40-54
Author(s):  
Sarika Keswani
Keyword(s):  
Human Behavior ◽  
Behavioral Finance ◽  
Significant Role ◽  
Positive Emotions ◽  
Investment Decisions ◽  
Psychological Theory ◽  
Decision Makers ◽  
Business Decisions ◽  
Financial Decisions ◽  
Self Confidence

Most of the investors focus on human emotions not expressed openly while making investment decisions. Emotions have a powerful position in making investment decisions. They drive human behavior that is consistent with economic predictions while making investments. Emotions play a significant role while making decisions on investments just like any other business decisions. Behavioral finance tries to combine behavioral and cognitive psychological theory with conventional economics and finance to provide justifications for why people make irrational financial decisions. The aim of this chapter is to understand whether emotional phases affect investors' decisions in different investment situations basing on levels of uncertainty. Positive emotions like self-confidence, challenge, and hope increase the decision-makers tendency to exaggerate the commitment, and negative emotions, namely embarrassment and strain, do not.

Emotional Finance Plays an Important Role in Investment Decisions

2019 ◽  
pp. 89-103 ◽  
Author(s):  
Sarika Keswani
Keyword(s):  
Human Behavior ◽  
Behavioral Finance ◽  
Significant Role ◽  
Positive Emotions ◽  
Investment Decisions ◽  
Psychological Theory ◽  
Decision Makers ◽  
Business Decisions ◽  
Financial Decisions ◽  
Self Confidence

Most of the investors focus on human emotions not expressed openly while making investment decisions. Emotions have a powerful position in making investment decisions. They drive human behavior that is consistent with economic predictions while making investments. Emotions play a significant role while making decisions on investments just like any other business decisions. Behavioral finance tries to combine behavioral and cognitive psychological theory with conventional economics and finance to provide justifications for why people make irrational financial decisions. The aim of this chapter is to understand whether emotional phases affect investors' decisions in different investment situations basing on levels of uncertainty. Positive emotions like self-confidence, challenge, and hope increase the decision-makers tendency to exaggerate the commitment, and negative emotions, namely embarrassment and strain, do not.

Simulation of emotional differences in the structured query language for databases of financial markets

2021 ◽  
Vol 14 (2) ◽  
pp. 156-173
Author(s):  
Semen Yu. BOGATYREV
Keyword(s):  
Information Systems ◽  
Financial Market ◽  
Behavioral Finance ◽  
Query Language ◽  
Learning Technologies ◽  
Financial Decisions ◽  
Self Confidence ◽  
Structured Query Language ◽  
The Face ◽  
Modern Information

Subject. The article addresses a simulation in the structured query language (SQL) for the Bloomberg information base, the scientifically grounded tools for measuring emotions in markets in the face of financial and pandemic crisis and market imbalances, in addition to classic financial indicators, the creation of analytical tools based on state-of-the-art software tools that integrate the latest advances in behavioral finance and in financial and coefficient analysis, machine learning technologies, and open financial market data. Objectives. The aim is to create a usable toolkit for balanced evaluation of financial and economic situation of companies, based on the analysis of the main Russian and foreign modern means to measure emotions. Methods. The study employs methods of induction, deduction, and modeling. It demonstrates the link between methods and methodologies with new technical means of modern information systems. Results. The paper studies the effect of the heuristics of insufficient reaction and heuristics of excessive self-confidence, using the examples of market drawdown. I developed and implemented a model, using the behavioral finance tools as a factor in stabilizing financial decisions. Conclusions. New software and hardware tools enabled to identify and measure the actions of the heuristics of financial market participants. Financial analysts, when applying the new capabilities of modern information systems for programming and creating user models with required parameters and extensive database, will have new opportunities in the described models. The procedure for collecting and processing the original information required for valuation is simplified.

Effect of Disposition Effect on Investment Decision Making in Property Market in Plateau State, Nigeria

2019 ◽  
pp. 83-98
Author(s):  
Dashol Ishaya Usman ◽  
Mary Pam
Keyword(s):  
Decision Making ◽  
Behavioral Finance ◽  
Investment Decision ◽  
Investment Decisions ◽  
Primary Data ◽  
Property Market ◽  
Financial Decisions ◽  
Descriptive Research ◽  
Investment Decision Making ◽  
Plateau State

The purpose of the chapter was to establish the effect of disposition on investment decision making in property market in Plateau State, Nigeria. Descriptive research design was used in the study. Primary data was collected using standard questionnaires with both closed and open-ended questions. The regression analysis results confirmed that there was a significant positive linear relationship between disposition and investor investment decision making in property market in Plateau State in Nigeria. The study concluded that disposition effects bias does not alter rationality in investment decision making. Disposition affected investment decisions. The main recommendation for investors is to make constant attempts to increase their awareness on behavioral finance by educating themselves on the field. Studying about the biases and reflecting on their decisions are likely to help achieve better self-understanding of the extent and manner to which they are influenced by emotions while making financial decisions under uncertainty.

Investment Perspective According to Behavioral Finance Science

2010 ◽  
Vol 16 (58) ◽  
pp. 1
Author(s):  
Sa’ad Al-Anizi
Keyword(s):  
Human Behavior ◽  
Behavioral Finance ◽  
Human Action ◽  
Security Market ◽  
Market Theory ◽  
Efficient Market ◽  
Financial Decisions ◽  
Security Markets ◽  
Efficient Market Theory ◽  
Financial Awareness

The first thing that comes to mind is the highly important question of whether there were some effects of human behavior and its fluctuations on the theories of the efficient market and the contemporary investment portfolio. According to what has been said by the proponents of these two theories; when the optimal return is realized, the efficiency of the market is achieved in terms of perfect information on prices and risk that supposed to be predetermined in a rational way. he other question that imposed here is “at what time people should be rational in their investments in the security markets ?”. This means that investors are rational for their efforts devoted to utility maximization, which are perceived as a result of investing their wealth in the best possible manner. Then, can those two questions be achieved in practice? Many ontological aspects are influenced in their relations by emotions and feelings more than by money as a financial resource . Investors may take irrational financial decisions because of the dominance of those emotions and feelings compared with what investors do toward other actions in their public and special daily life. Understanding investors financial awareness without taking into account the human action is considered as an outstanding problem which can be assimilated as an attempt to sail with compass, but without guided maps. The importance and necessity of human psychological factor are arise when we are talking about investing common stocks in the security market. Then, this means that issues directing investment decisions of individuals in financial assets whether they were stocks or bonds, can be only interpreted with referring to principles of human behavior. Absolutely there is no exaggeration if we said that the market in general be advanced, lagged behind , prospected , and crept when making collective  decisions in buying securities through viewing  psychological factors which capture individuals behaviors after information being collected and analyzed. The validity of an efficient market theory has been widely accepted by its proponents for a long time lasting almost a century so that any research on  the psychological aspects of a security market encountered by objection till a close time of ten years .  

Behavioral Finance vs. Traditional Finance

2019 ◽  
pp. 1-23
Author(s):  
SİNEM DERİNDERE KÖSEOĞLU
Keyword(s):  
Behavioral Finance ◽  
Investment Decisions ◽  
Human Psychology ◽  
Financial Decisions

This chapter explored the development of behavioral finance theories from the traditional finance theories in detail. Traditional financial theory has assumed that investors are perfectly well-informed in making financial decisions for many years. However, the reality shows that these assumptions are not valid, especially over the last two decades. It is observed that investors exhibit irrational behaviors by acting with emotions even if they are well-informed. Because of the awareness of the importance human psychology in investment decisions, behavioral researchers have advanced their research in this direction. Thus, behavioral finance theories have been developed with this in mind.

Personality and Emotional Biases

2019 ◽  
pp. 139-161
Author(s):  
Sezen Güngör ◽  
Engin Demirel ◽  
Nihan Tomris Küçün
Keyword(s):  
Behavioral Finance ◽  
Investment Decisions ◽  
Novelty Seeking ◽  
Financial Investment ◽  
Financial Decisions ◽  
Reward Dependence ◽  
Character Inventory ◽  
Self Transcendence ◽  
The Relationship ◽  
Four Temperaments

Over the past decades, Cloninger et al. have developed a biosocial model of personality based on four temperaments and three characteristics. This multidimensional psychobiological model of personality presents in the temperament and character inventory – revised (TCI-R) form. Temperament subscales are novelty seeking (NS), harm avoidance (HA), reward dependence (RD), and persistence (P), and character subscales are self-directedness (SD), cooperativeness (CO), and self-transcendence (ST). The study has been used in different disciplines of science, especially in psychology. Behavioral finance is one of these disciplines of science. TCI is frequently used, especially for investor biases. In this chapter, TCI is used to examine the relationship between investor biases and personality. The first three chapters are about personality. Personality, personality approaches, and personality measurement methods examined in these sections. In the fourth part, emotional biases in financial investment decisions searched. In the fifth part, literature studies showing the relationship between personality and financial decisions included. Finally, a field survey is conducted, and findings are revealed.

The Role of Psychological Factors in Behavioral Finance

2015 ◽  
pp. 94-115 ◽  
Author(s):  
Kijpokin Kasemsap
Keyword(s):  
Behavioral Finance ◽  
Psychological Factors ◽  
Ambiguity Aversion ◽  
Psychological Theory ◽  
Global Finance ◽  
Strategic Objectives ◽  
Financial Decisions ◽  
Belief Perseverance ◽  
Finance Theory

This chapter introduces the role of psychological factors in behavioral finance, thus explaining the theory of behavioral finance, the application of behavioral finance theory, the empirical achievement in behavioral finance, the utilization of psychological factors in behavioral finance regarding beliefs (i.e., overconfidence, too much trading, optimism and wishful thinking, representativeness bias, conservatism bias, belief perseverance, anchoring, and availability bias) and preferences (i.e., prospect theory and ambiguity aversion). Behavioral finance is a comparatively new management field that seeks to combine behavioral and cognitive psychological theory with conventional economics and finance to provide descriptions for why people make unreasonable financial decisions. Psychological factors in behavioral finance hold out the expectation of a better understanding of financial market behavior and scope for investors to make better investment decisions. Applying psychological factors in behavioral finance will tremendously enhance financial performance and achieve strategic objectives in global finance.

scholarly journals BEHAVIORAL FINANCIAL DECISIONS OF THE POPULATION IN THE PROCESS OF CONSUMPTION

2020 ◽  
pp. 19-28
Author(s):  
Natalia KARPYSHYN ◽  
Solomia TABAKA
Keyword(s):  
Behavioral Finance ◽  
Negative Impact ◽  
Continuous Process ◽  
Visual Presentation ◽  
Behavioral Factors ◽  
Negative Effects ◽  
Financial Decisions ◽  
Goods And Services ◽  
Self Confidence ◽  
Subjective Perceptions

Introduction. The financial decision-making process depends not only on objective economic factors and motives; it is often under the influence of behavioural factors and subjective perceptions of situations. Consumption, as a continuous process of acquiring goods and services, has become an integral attribute of public life and a significant item of expenditure of personal and family budgets. Therefore, understanding the behavioural effects that affect the financial behaviour of consumers is an important step towards conscious consumption and rational spending of personal funds. The purpose is to theoretical analyse the influence of behavioral factors on the financial decisions of citizens in the field of consumption in order to reduce their negative effects and optimize consumer spending. Methods. System of general scientific and special research methods were used in the article. Methods of analysis, synthesis and generalization were used for the study of literary, statistical and Internet sources on the research topic; visualization method were used for visual presentation of the processed data; abstract-logical method - for generalize the presented material and formulate conclusions. The method of questionnaires and sampling, methods of statistical analysis and comparison were used for evaluate the financial decisions of households in Ukraine. Results. The article presents that using of an “intuitive” system of making financial decisions in the process consumption leads to unconscious and irrational spending of personal funds. The author generalized theories of behavioral finance and systematized the behavioral factors that influence citizens' financial decisions, namely: heuristics, emotions, framing, market influence, psychological accounting and loss perception. It has been proven that due to the lack of time for detailed information analysis, people make decisions under the influence of heuristics, such as the bandwagon effect, possession and anchoring. In such cases, money is spent irrationally and consumption becomes unconscious, as it is stimulated by marketing technologies and manipulations. Behavioral factors of emotional influence (excessive self-confidence and greed) also push the population to unjustified financial risks. Author offer to improve state policy in the field of management of personal financial resources in way to help citizens avoid the negative impact of behavioral factors and make informed financial decisions. Perspectives. The subject of further scientific research is the search and in-depth study of ways to effectively use personal funds in the field of lending and investing in the context of behavioral theories.

scholarly journals Positive Emotions and Investment Decisions: A Conceptual Exploration

2019 ◽  
Vol 15 (01) ◽  
Author(s):  
Sushila . ◽  
Anindita Chakraborty
Keyword(s):  
Decision Making ◽  
Positive Emotion ◽  
Positive Emotions ◽  
Investment Decision ◽  
Investment Decisions ◽  
Financial Decisions ◽  
Emotional Factors ◽  
Investment Decision Making ◽  
Financial Decision ◽  
The Individual

Investment decision making is a crucial step to be taken by every individual on a regular basis, whether it's short term or long term, for consumption or for saving purposes but require the least bit of knowledge about financial terms. On the other hand, there are many factors which directly or indirectly affect our decision making and emotional factors are one of them. Emotions can be used as accurate appraisal and expression of internal feelings to motivate, better planning, consistent practices and achieve the financial goals. Emotions not only affect our mental ability, but also the physical activities which defines the overall personality of the individual, emotions can be of different types, but we mostly know positive and negative which is the reflection of our beliefs and values and result into our decision.This paper will start with the explanation of investment decision making and how investment decisions can change with the effect of positive emotion. Based on the literature, it was found that positive emotions are positively related to the investment decision making and person with positive emotion and attitude take wise and better financial decision. With the calm mind and positive emotions people can think better and it reflected in their financial decisions.

How “The Three Rules” guide strategy and investment decisions at Deloitte Consulting LLP

2015 ◽  
Vol 43 (3) ◽  
pp. 7-14 ◽  
Author(s):  
Jim Moffatt
Keyword(s):  
Design Methodology ◽  
Large Scale ◽  
Investment Decisions ◽  
Decision Makers ◽  
Research Project ◽  
Content Type ◽  
First Case ◽  
Practical Implications ◽  
Thought Leadership

Purpose – This case example looks at how Deloitte Consulting applies the Three Rules synthesized by Michael Raynor and Mumtaz Ahmed based on their large-scale research project that identified patterns in the way exceptional companies think. Design/methodology/approach – The Three Rules concept is a key piece of Deloitte Consulting’s thought leadership program. So how are the three rules helping the organization perform? Now that research has shown how exceptional companies think, CEO Jim Moffatt could address the question, “Does Deloitte think like an exceptional company?” Findings – Deloitte has had success with an approach that promotes a bias towards non-price value over price and revenue over costs. Practical implications – It’s critical that all decision makers in an organization understand how decisions that are consistent with the three rules have contributed to past success as well as how they can apply the rules to difficult challenges they face today. Originality/value – This is the first case study written from a CEO’s perspective that looks at how the Three Rules approach of Michael Raynor and Mumtaz Ahmed can foster a firm’s growth and exceptional performance.

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