NAVIGATING BEHAVIORAL FINANCE: KEY KNOWLEDGE FOR ALL

Abstract

The concept of an "efficient market" has long been a central discussion within the field of Finance. Over time, the focus shifted from the hypothetical "rational man" to acknowledging the realities of normal, often irrational, human behavior. This evolution, alongside the emergence of prospect theory and the contributions of renowned figures such as Thaler, Shefrin, and Michael Pompian, led to the gradual development of Behavioral Finance. As defined by Meir Statman, a distinguished personality in the field, Behavioral Finance is "the study of normal man," effectively merging the concepts of psychology and finance. Its origins can also be traced, to a certain extent, to the utility theory of economics, from which behavioral economics later branched. This chapter aims to provide a brief overview of Behavioral Finance's origins, its current role, and its future scope, specifically highlighting its significance in the present scenario.