In a monthly series, Robert R. Johnson, CFA, discusses the role of behavioural finance in investment decision making.

What is behavioural finance?
Behavioural finance combines the classical theories of economics and psychology. It attempts to explain deviations from the standard view that economic actors make unemotional or rational decisions. In forecasting, for example, investors tend to be overly confident in their accuracy, place undue emphasis on recent experience, and anchor their expectations using others’ predictions.