|Opis:||Behavioural finance has undergone tremendous growth and change over the last half century and has had a profound impact on economic finance. They achieved the greatest success by researching the effects that cognitive psychological biases have on investment decisions. In this thesis, we have found out what behavioral finance is, its history, present and what it represent in relation to modern finance. We have worked extensively on the behavioral finance loops and their impact on investment decisions. We found that investor behaviors and decisions are strongly influenced by biases and judgement, which can be classified into seven major categories: mental accounting, herding, overconfidence, aversion to ambiguity, anchoring, representativity and availability bias. Decision making is also affected by preference errors, which we have categorized into five main categories: gambling, self-control, framing, regret and money illusion. Through an in-depth understanding of behavioral finance, we have found that on the market, the investors are not behaving rationally, as they are driven mostly by their emotions and biases.
The impact of behavioral finance can be applied to both individual investors and institutional investors. We find that more rational behavior prevails among institutional investors in relation to financial decision making, where investors rely on more detailed analysis. However, individual investors are driven more by irrational, emotional choices when making decisions, which leads to investment mistakes. In this thesis, we also dealt with behavioral finance coping strategies and proposals for successful investment in stocks and mutual funds. Successful investment proposals help investors overcome psychological biases and enable them to make more rational decisions in the market.|