"The linkage between Behavioural Finance and investment decision-making"

Abstract

Speaking of Behavioural Finance, we are referring to an interdisciplinary field of study linking several distinct areas, such as: Social, Psychological, Artistic and Anthropological studies to Business and Economic ones. In the light of this, Behavioural Finance is a powerful instrument enabling us to find answers to common doubts related to investments and finance by placing the human factors as centre of attention in the analysis. Precisely, this approach intends to identify the relationship among social as well as psychological determinants and investment decisions, to define how the former variables directly impact the latter ones. One of the main pillars of Behavioural Finance lies in its underlying concept that investors as well as market participants are not always rational individuals but conversely, they can be affected by cognitive biases and their self-control can be subjected to limits. In light of the above, this new school of thought contradicts the more radical assumptions concerning decision-making which has been pursued by multiple Neoclassical scholars in precedence and rooted in the idealistic conception of the individual, portrayed as Homo Oeconomicus. This thesis presents the key principles recognised as main cornerstones of Behavioural Finance and analyzes through them, the guiding forces which materially affect individuals when struggling with financial or economic decisions. In conclusion, an analysis focused on understanding how the several forms of support can play a meaningful role with respect to biases and investor’s decisions is carried out, from both a methodological and empirical perspective.