Behavioral Finance (1)- Behavioral Finance VS Traditional Finance

Since 1980s, with the accumulation of various abnormal phenomena in financial markets and people's increasing attention to the study of financial abnormal phenomena, traditional financial theories have been severely challenged, and a number of brand-new financial theories have emerged gradually, among which behavioral finance theory is one.

In order to facilitate understanding, behavioral finance can be simply understood as

Behavioral finance = psychology)+finance.

Traditional finance and behavioral finance can be divided into micro and macro aspects. We can make a simple understanding from the research object level.

Traditional finance assumes that all market participants are rational economic men,

Rational people have the following characteristics

In traditional finance, how rational people make investment decisions is mainly based on expected utility theory.

Behavioral finance breaks the hypothesis of rational people, and accordingly, we call it normal individuals here.

Has the following characteristics:

Regarding the investment decision-making process, the prospect theory is used instead of the expected utility theory in behavioral finance.

Compared with the expected utility theory, there are several key differences.

The value function diagram of each result is as follows

The function diagram has the following four characteristics:

Traditional finance thinks that the market is efficient and the market price fully reflects all relevant information, which is the famous market efficiency theory.

There are many situations in the market that are contrary to the abnormal situation of the efficient market hypothesis.

Basic anomalies (taking the United States as an example)

Technical anomaly

Calendar exception