- why individuals make the decisions that they do,
- whether these decisions are rational or irrational.
It is based on the premise that individuals, due to the presence of behavioural biases:
- do not always make "efficient" investment decisions, or
- do they always act "rationally"
These behavioural biases include:
- Loss Aversion
- Information Cascades
- Mental Accounting
- Narrow Framing
Whether investor behaviour can explain market anomalies is a subject open to debate.
- If investors must be rational for the market to be efficient, then markets cannot be efficient.
- If markets are defined as being efficient, investors cannot earn superior risk-adjusted profits consistently.