An Introduction to Behavioural Finance

introduction to behavioural finance

This article will provide an introduction to behavioural finance, as well as details to our introductory webinar with behavioural insights partner BE-IQ. 

Irrespective of who you are and your psychological make up, you can’t help but feel some degree of worry or sensitivity to what is going on around us at the moment. Afterall, we are hard-wired by evolution to be fearful in times of uncertainty.


However, in order to move forward, we need to get to grips with a few fundamentals of human behaviour. Doing this gives us a framework that can help us make sense of both the internal and external influencers that trigger our emotions and drive our decisions, particularly our financial decisions.

 

What is Behavioural Finance?

 

How often do you think that psychology has a relation to finance and the decisions you make?

Behavioural finance is the study of psychological influences on the behaviour of investors or financial analysts. However, the concept extends past the traditional investor and can be applied to the way we all make financial decisions.

Financial decisions are influenced by biases we are totally unaware of but can have a profound impact on the foundations of our determinations. Being human is complicated. Our decisions are wrapped up in emotions. How we feel can often cloud our judgement from the facts.

That’s why the traditional financial theory where investors are rational, risk-averse, and able to process information in an unbiased way can somewhat seem unrealistic.

It would be laudable if investors and markets made decisions based only on solid economics and financial analysis of businesses. But at times, even the most experienced investor can lack self-control, act irrationally, and make decisions based more on personal biases than facts. After all, we’re only human.

 

 

Why is it important?

Behavioural Finance has been able to derive the psychological dynamics that can be combined with logical thinking.

Having knowledge and awareness of our behavioural biases can thus help us improve our decision-making. It’s not necessarily about being ‘right or wrong’, rather, it’s about embracing our experiences and the elements that have influenced who we are and how we see things. This subsequently impacts our decision-making.

Behavioural finance holds out the prospect of a better understanding of financial market behaviour and scope for people to make better financial decisions based on an understanding of the potential pitfalls.

 
Effects of Cognitive Biases from 'These Five Cognitive Biases Hurt Investors the Most' (Visual Capitalist)


Can we find out what behavioural biases we have?
 

Luckily there are ways that we can find out and be aware of these unconscious biases we have.

 

BEAM App by BE-IQ

 

Our behavioural insights partner, Be-IQ have launched their free app – BEAM, which helps you measure and understand the various biases through a series of intuitive and interactive games. The app also helps us understand the dynamics and behaviours that make us human.

 

 beam app screenshots

Introductory webinar: The Secrets of Decision-Making: A Behavioural Insight

 

As the first UK financial planner to launch this app with our clients, in partnership with Be-IQ, there will be an introduction webinar with Be-IQ founder Neil Bage and Murphy Wealth CEO Adrian Murphy.

 

 On this 30-minute call, we will talk about: 

  • Recognising our fears (and why we have them)
  • Understanding our behaviours and how they influence our mindset
  • Learning from the personal behavioural issues we are all facing
  • The role of a trusted Adviser (not just your Financial Adviser)

 

Sign up to receive details of the webinar here. 

Weekly Uncommon Sense

 

Every week we will be writing to you about how we interpret the world around us and its changing nature. The aim is to draw your attention away from the 24 hour news cycle to see beyond the short term unknowns. Hopefully this will help build your positive mindset and focus on the decisions that you can control.

 

You can sign up to view these online here.

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