Traditional vs. Behavioral Finance Insights
Traditional vs. Behavioral Finance Insights
Behavioral Finance Theory challenges the assumptions of Traditional Finance by suggesting that investors are not perfectly rational, as Traditional Finance assumes, but rather exhibit "normal" behavior that includes cognitive biases and errors. Unlike the Traditional Finance view that investors have perfect self-control and are not influenced by biases, Behavioral Finance acknowledges the influence of biases and limits to self-control, which can lead to anomalies in decision-making .