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Most of the time common stocks are subject to irrational and excessive price fluctuations in both directions as the consequence of the ingrained tendency of most people to speculate or gamble … give way to hope, fear and greed.”
The terms investor psychology, behavioral finance and neuroeconomics have become synonymous with research conducted on how individuals make decisions regarding money.
Since the 1970s, this field of study has continued to gain legitimacy, culminating in 2002 when a Nobel Prize was awarded to psychologist Daniel Kahneman and experimental economist Vernon Smith for their landmark research.
The work of Kahneman and others provide empirical support to the notion that individual behavior does not align with traditional simplistic economic theories on financial decision making.