The role of behavioral finance in modern age investment

Abstract

Decision making process is very complex task that involves various activities like industry and company analysis along with analysis of past performance of individual stocks/assets. Asunder from this, one of the most important factors that influence the individual's investment decision is cognitive illusions. Individual investor‘s behavior is influenced by various heuristic and biases, which are brought to light by the emerging field of behavioral finance. This paper provides a conceptual framework of the various principles of Behavioral Finance including cognitive illusion: Heuristics, Overconfidence, Representativeness, Anchoring, Gambler's Fallacy,Prospect Theory, Loss Aversion, Regret Aversion, Mental Accounting and Disposition Effect.