This report gives a brief introduction to Behavioral Finance. First, we present some thought-provoking examples based on empirical human behavior in risky and uncertain decision-making. Then, we present some history on rationality that is the support of formal theories on finance and economics. Finally, we introduce two applications of behavioral modelling in finance.

n 1985, Werner De Bondt and I published an article that asked the question: “Does the stock market overreact?” The article was controversial because it gave evidence to support the hypothesis that a cognitive bias (investor overreaction to a long series of bad news) could produce predictable mispricing of stocks traded on the NYSE. Although this idea was hardly shocking to practitioners, the co...

The paper aims to study the growth and evolution of finance, as well how finance theories aids investors in decision-making. traditional model's perfect mobility rationality fail predict economic events, dot-com bubble, European debt crisis. These disasters provide foundation for development behavioral finance. Psychology are merged into It defies financial premise. field provides unique insigh...

I provide a synthesis of the behavioral finance literature over the past two decades. I review the literature in three parts, namely, (i) empirical and theoretical analyses of patterns in the cross-section of average stock returns, (ii) studies on trading activity, and (iii) research in corporate finance. Behavioral finance is an exciting new field because it presents a number of normative impl...

Behavioral finance and classical finance based on utility maximization appear to be mutually exclusive schools of thought. Despite the fundamental difference, we show that behavioral finance also has a linear relation between risk and return. This relation is obtained without the assumptions of market equilibrium, rational expectations, a specific utility function and the market portfolio. In t...

Kabbalah and its Tree ofLife integrate the cognitive, behavioral/emotional and action levels of human existence, explaining the relations between these and their unity. This makes it an ideal framework for behavioral economics and finance where cognitive and emotional biases and heuristics play a central role. In Burstein and Negoita [9], we began to develop a Kabbalah system theory, modeling t...