Below is an intro to finance theory, with a review on the mental processes behind finances.

The importance of behavioural finance lies in its ability to explain both the rational and unreasonable thought behind different financial processes. The availability heuristic is a concept which explains the mental shortcut in which individuals assess the probability or importance of affairs, based on how quickly examples come into mind. In investing, this typically results in choices which are driven by current news events or narratives that are mentally driven, instead of by thinking about a broader interpretation of the subject or looking at historical information. In real life contexts, this can lead investors to overestimate the likelihood of an event occurring and produce either an incorrect sense of opportunity or an unwarranted panic. This heuristic can distort perception by making rare or severe events seem to be much more common read more than they actually are. Vladimir Stolyarenko would understand that to combat this, financiers must take a purposeful approach in decision making. Similarly, Mark V. Williams would know that by utilizing data and long-lasting trends investors can rationalize their judgements for better results.

Research study into decision making and the behavioural biases in finance has brought about some fascinating suppositions and philosophies for explaining how individuals make financial choices. Herd behaviour is a widely known theory, which describes the mental propensity that many individuals have, for following the actions of a bigger group, most particularly in times of unpredictability or worry. With regards to making financial investment decisions, this often manifests in the pattern of individuals purchasing or selling assets, merely due to the fact that they are experiencing others do the exact same thing. This sort of behaviour can incite asset bubbles, whereby asset values can increase, frequently beyond their intrinsic worth, along with lead panic-driven sales when the marketplaces change. Following a crowd can provide a false sense of safety, leading financiers to buy at market elevations and resell at lows, which is a rather unsustainable financial strategy.

Behavioural finance theory is an important component of behavioural science that has been extensively researched in order to describe a few of the thought processes behind monetary decision making. One interesting theory that can be applied to investment decisions is hyperbolic discounting. This concept describes the tendency for people to favour smaller, immediate benefits over bigger, defered ones, even when the delayed benefits are significantly more valuable. John C. Phelan would recognise that many people are affected by these sorts of behavioural finance biases without even realising it. In the context of investing, this bias can severely weaken long-lasting financial successes, resulting in under-saving and impulsive spending practices, in addition to developing a concern for speculative investments. Much of this is because of the satisfaction of reward that is instant and tangible, leading to choices that may not be as favorable in the long-term.