Behavioral Finance Guide John Spacey, updated on
Behavioral finance is an approach to modeling markets that considers human cognitive factors. Standard economic models view markets as perfect information processing machines that always efficiently price assets and securities. This differs from the common observation that prices often seem irrationally high or low due to excessive enthusiasm or fear. Behavioral finance focuses on inefficiencies such as errors of logic, herd behavior and emotional decisions that cause inaccurate prices. The following are core concepts of behavioral finance.
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Alpha vs Beta
The difference between two common investment measurements.
Regression Toward The Mean
An overview of Regression Toward The Mean.
Efficient Market HypothesisAn overview of the Efficient Market Hypothesis.
Animal Spirits
An overview of animal spirits, a theory of investing.
Financial MarketsA definition of financial market with examples.Organic Growth
A definition of organic growth with examples.
Information CostsA definition of information costs with examples.Channel Check
The definition of channel check with examples.
Business RisksA list of common business risks.Risk TreatmentThe five things that can be done about risk.Risk Management Effectiveness
A metric for measuring risk management.
Positive RiskThe potential that you'll achieve too much of a good thing.Dread Risk
Any risk that people have a strong aversion too.
Risk TakingThe definition of risk taking with examples.Risk ExamplesA list of risk examples by type.Risk Probability vs Risk ImpactThe two main factors in modeling a risk.Calculated RiskA definition of calculated risk with an example.Relative Risk
How to calculate relative risk with examples.
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