An assessment on the contribution of behavioral finance to investment theory

Most of the fields of economics and finance are based on the principle that people act rationally and have full knowledge in investment or other economic decision-making processes. In this respect, many theories and models have been developed so far. On the other hand, in many studies, it has been determined that people behave irrationally and thus economic and financial theories do not match with the market. In this framework, the phenomenon of behavioral development has gained an important place in economic concepts. Individuals should be accepted as an asset that is not rational, affected by external factors and can succumb to their feelings and thoughts, that investor individuals should not only focus on risk and return while making investment decisions, but should also include other variables, and that these decisions should not be based on the principle of utility maximization, but at best possible described it as an assumption. In behavioral finance, the individual's display of psychological and cognitive tendencies in investment decisions by being influenced by external factors has been an important factor in making these decisions, and it is believed that the creation of strategies against these tendencies can shed a light on the investment decisions of individuals.