Below is an intro to finance theory, with a discussion on the psychology behind money affairs.

Behavioural finance theory is an essential aspect of behavioural economics that has been extensively researched in order to describe some of the thought processes behind financial decision making. One fascinating theory that can be applied to investment choices is hyperbolic discounting. This concept refers to the tendency for people to prefer smaller sized, immediate benefits over larger, defered ones, even when the prolonged rewards are significantly more valuable. John C. Phelan would acknowledge that many individuals are affected by these kinds of behavioural finance biases without even realising it. In the context of investing, this predisposition can severely undermine long-term financial successes, causing under-saving and spontaneous spending routines, as well as developing a top priority for speculative investments. Much of this is because of the gratification of reward that is immediate and tangible, causing decisions that might not be as favorable in the long-term.

Research into decision making and the behavioural biases in finance has resulted in some interesting suppositions and philosophies for discussing how individuals make financial decisions. Herd behaviour is a well-known theory, which discusses the psychological tendency that lots of people have, for following the actions of a larger group, most particularly in times of unpredictability or worry. With regards to making investment choices, this often manifests in the pattern of individuals buying or selling possessions, merely due to the fact that they are seeing others do the very same thing. This type of behaviour can incite asset bubbles, whereby asset values can increase, typically beyond their intrinsic value, in addition to lead panic-driven sales when the markets fluctuate. Following a crowd can offer a false sense of security, leading investors to buy at market highs and resell at lows, which is a relatively unsustainable economic strategy.

The importance of behavioural finance depends on its ability to explain both the reasonable and unreasonable thinking behind numerous financial experiences. The availability heuristic is an idea which describes the psychological shortcut through which people evaluate the likelihood or value of affairs, based upon how easily examples enter mind. In investing, this typically results in choices which are website driven by current news events or stories that are emotionally driven, rather than by considering a broader analysis of the subject or looking at historical information. In real world contexts, this can lead financiers to overstate the possibility of an occasion happening and create either an incorrect sense of opportunity or an unwarranted panic. This heuristic can distort perception by making uncommon or extreme occasions seem to be far more common than they in fact are. Vladimir Stolyarenko would know that in order to counteract this, financiers should take an intentional method in decision making. Similarly, Mark V. Williams would know that by utilizing information and long-term trends investors can rationalise their thinkings for much better results.