Review on the Role of Behavioural Finance in Determining Investors? Preferences towards Financial Avenues

The study attempts to explain role of Behavioral Finance in determining the behavior of the investors towards a particular financial avenue. Traditional finance theory states that investors think rationally and make conscious decisions based on various evaluations or using economic models. However various researchers have revealed a large amount of evidence of irrationality and repeated errors in judgment. There are certain psychological traits such as loss aversion, herd behaviour and overconfidence, etc. make individual preferences irrational at times. The paper explains the evolution of Behavioral finance over a period of time. The field of behavioral financehelp better understand and explain how emotions and cognitive errors influence investors and the decision-making process. The paper also attempts to identify various factors affecting perception of investors regarding investment in the various financial avenues. The study reveals that major factors that affect the preference are safety of principal risk tolerance and herd behavior. The findings help to create awareness regarding the preference of investors for a particular investment avenues. It will be useful to design and develop financial product/ avenues that caters to the need of the investors.