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Behavioral Finance

Behavioural finance, a sub-discipline of economics, delves into the psychological influences and cognitive biases that affect the financial decisions of individuals and institutions. Unlike traditional finance theories that assume rational and logical behaviour, behavioural finance introduces a more nuanced understanding of financial markets by considering emotions and irrational behaviours. For instance, the concept of 'loss aversion'—where individuals fear losses more than they value gains—helps explain why some investors hold onto losing stocks for too long. By acknowledging that humans are not always rational actors, behavioural finance offers profound insights into why and how market anomalies occur, ultimately providing a more comprehensive toolkit for financial analysts and investors.

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