The efficiency of the investor's behaviors and psychological illusions

The aim of this research, called ?The Efficiency of the Investor?s Behaviors and Psychological Illusions?, is to determine investors? level of financial literacy and cognitive ability and to designate the relationships among financial literacy and cognitive abilities psychological illusions and risk preference. Within the scope of the research, an answer is sought for the questions like ?what are traditional and behavioral finance theories?, what are the pscyhological factors that effect investor?s decision-making?, what are the levels of investors? cognitive ability and financial literacy?, what is investors? attitude against risky choices?, and what are the relationships among financial literacy, risk preferences, and cognitive abilities with psychological illusions??. The theoretical part of the research is formulated by using local and foreign literature and references. Regarding the study topic, the necessary books and the articles were examined by making a literature review. At the implementation part, a field study is conducted for measuring the relationship among psychological illusions, financial literacy, risk preferences and cognitive abilities. A questionnaire is conducted on individual investors and by studying individual investors, this study experiments and evaluates the changes on the levels of financial literacy and cognitive abilities and their relationships with the psychological biases and risk preferences. The research consists of three parts, excluding the introduction and conclusion parts. At the first part, some information was given on risk and return concepts with techniques that used while acquiring financial tools and theories that based on rationality. At the second part, behavioral finance and psychological biases were analyzed in detail. At the third and the last part of the study, explanations about financial literacy and cognitive abilities were given and the descriptions about the questionnaire and its evidences have been explained. KEY WORDS: Behavioral Finance, Prospect Theory, Heuristics, Financial Literacy, Cognitive Abilities.