Behavioral Finance and Technical Analysis

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Behavioral Finance and Technical Analysis (within Behavioral Finance): Introduction Behavioral Finance is more often referred to as Behavioral Economics ('This area of enquiry is sometimes referred to as "behavioral finance," but we call it "behavioral economics." Behavioral economics combines the twin disciplines of psychology and economics to explain why and how people make seemingly irrational or illogical decisions when they spend, invest, save, and borrow money.' Belsky and Gilovich (1999)) Behavioral Finance is a field that uses scientific research on human social, cognitive, and emotional functioning in order to better understand human decision-making within the financial context. Understanding this helps economists, businesses, and all people involved with finance plan and formulate better scientific decisions in regards to aspects such as market prices, returns and the allocation of resources. It is especially helpful for understanding investor behavior. Behavioral Finance integrates psychology and neo-classical economic theory in its approach and works towards understanding both the effects of market decisions as well as those of investor behavior. It does so by combining prediction (mainly made with technical analysis) and behavioral components in order to better understand people's rational (or irrational) decision-making within the context of finance. History Economics, at its birth, had a close tie with psychology. Adam Smith, for instance, produced his
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