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What Game is Your Brain Playing?

Posted June 2, 2023

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Were you ever interested in psychology? Maybe you took Psych 101 in college to learn more about your thoughts, why your peers acted a certain way, or the science behind your behaviors.

Whether you took psychology or feel as distant from it as possible, it’s integrated into everything we do. From the reason brands choose certain colors to represent their company to the reason advertisements tell the stories they tell, there’s a psychology to it all.

This is also true when it comes to your finances.

Behavioral finance states that psychological influences and biases can affect investors’ and financial practitioners’ financial behaviors. These behaviors then, in turn, affect the market. The rises and falls in the stock market can be traced back to these financial behaviors (Source: Investopedia).

Behavioral finance is important for several reasons:

1. Helps explain market anomalies:

Traditional finance theory assumes that market participants are rational and make logical decisions based on all available information. However, behavioral finance recognizes that humans are not always rational and can be influenced by emotions, biases, and heuristics, resulting in market anomalies. By studying these anomalies, behavioral finance can help explain why certain market trends or behaviors occur.

2. Offers a more realistic perspective:

Behavioral finance provides a more realistic perspective on how individuals make financial decisions. Recognizing the impact of psychological and emotional factors offers a more complete understanding of how people behave in the financial markets.

3. Helps investors make better decisions:

Understanding the psychological factors that influence decision-making can help investors make better decisions. By recognizing the biases and heuristics that can lead to poor investment decisions, investors can take steps to minimize their impact and make more rational choices.

4. Improves financial education:

Behavioral finance helps improve financial education by highlighting the importance of psychological factors in financial decision-making. By incorporating these insights into financial education programs, individuals can develop a more sophisticated understanding of making better financial decisions.

Behavioral finance is important because it recognizes the limitations of traditional finance theory and provides a more complete understanding of how individuals make financial decisions. This can lead to better decision-making, more effective financial education, and a more realistic perspective on financial markets.

So, now that you understand what behavioral finance is and why it’s important, the next question you’re probably asking is, “What do I do with this information?”

Luckily, the Thayer Financial team has put together a video series entitled “Mind Games” that takes you through different behavioral finance situations and breaks them down to help you apply this concept from theory to real life.

Check out our Mind Games series on YouTube or our website at https://www.thayerfinancial.com/mind-games/. Still have questions about behavioral finance or another aspect of your finances? We’d love to connect with you— visit our website today to schedule your appointment.

Thayer Financial, L.L.C. (“Thayer Financial”) is a registered investment adviser offering advisory services in the States of North Carolina, Tennessee, Texas and in other jurisdictions where exempted. Registration does not imply a certain level of skill or training. This website’s presence on the Internet shall not be directly or indirectly interpreted as a solicitation of investment advisory services to persons of another jurisdiction unless otherwise permitted by statute. Follow-up or individualized responses to consumers in a particular state by Thayer Financial in the rendering of personalized investment advice for compensation shall not be made without our first complying with jurisdiction requirements or according to an applicable state exemption.

All written content on this site is for information purposes only. Opinions expressed herein are solely those of Thayer Financial, L.L.C., unless otherwise specifically cited. Material presented is believed to be from reliable sources and no representations are made by our firm as to other parties’ informational accuracy or completeness. All information or ideas provided should be discussed in detail with an advisor, accountant or legal counsel prior to implementation.

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