Behavioural finance
In this lesson, you'll explore how real investor behaviour often deviates from traditional financial theory. You'll learn the key concepts of behavioural finance—including herd behaviour, anchoring, emotional overreaction, confirmation bias, overconfidence, and the gambler's fallacy—and understand why investors make
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In this lesson
- 0:00 Lesson one: Behavioural finance introduction
- 0:11 Traditional view versus real-world markets
- 0:29 What behavioural finance explains
- 0:43 Rational decision-making assumptions challenged
- 3:15 Herd behaviour and anchoring bias
- 4:25 Emotions, confirmation bias, overconfidence
- 5:44 Gambler's fallacy and prediction errors
- 6:13 Limitations of behavioural finance theory
About this lesson
irrational decisions despite having access to all available information. This content is essential for FM, AFM, and SBL papers, where you'll need to explain financial decision-making beyond the assumption of perfect rationality. The lesson contrasts the traditional efficient market hypothesis, which assumes investors always act rationally and markets reflect all information, with real-world observations showing volatile share prices and market movements that don't align with news or economic changes. By understanding behavioural finance concepts, you'll be better equipped to advise on investment decisions and corporate acquisitions in exam scenarios, recognising when psychological factors might influence choices. The lesson also covers the limitations of behavioural finance theory, explaining how market discipline and longer-term horizons tend to restore rational behaviour, allowing you to apply both traditional and behavioural frameworks appropriately depending on context.
Duration: 7m
Transcript
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