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Understanding Human Behaviour in Financial Markets


We often have a tendency to look into any field of study with certain presets that are considered norms in the subject. The study of finance, for instance, is often viewed as a number-crunching and graph-plotting game. We tend to ignore the involvement of human psychology in it at different levels and doing so leaves certain gaps in our assessment and understanding of the subject. This is because of a very simple reason that finance, howsoever technical, is conducted and managed by humans and importantly for their benefit. As such studying finance without an understanding of human behaviour or psychology will make our understanding of finance incomplete. 

The goal of behavioural finance is to understand why people make certain financial decisions and how those decisions affect markets or financial systems. In behavioural finance, participants are assumed to be influenced by numerous personal and environmental components, rather than perfectly being…

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