Behaviorist (Finance) - Explained
What is a Behaviorist Investor?
Written by J. Mance Gordon
Updated at April 23rd, 2024
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What is a Behaviorist?
A behaviorist refers to one who adheres to the behavioral economics theory. This theory holds that investors neither act rationally nor do they act in their best interests.
Investing decisions, like every human activity, are subject to a complex mix of environment, emotion, and bias. The failure of following pure reason results in market inefficiencies, as well as, profit opportunities for investors who are informed.
Behavioral economics rejects the rational choice model, as well as the efficient market hypothesis, both of which have completely rational investor behavior based on available information.