Behavioural Model towards Investment Decisions

Abstract

Behavioural Finance and study of investor’s psychology has focused on the rationality of their investment planning and decisions. It was Oscar Wilde who described a cynic as one who “knows value of nothing but price of everything". Considering some equity research analysts and many researchers having "bigger fool" theory of investing, which highlights that the value of asset is irrelevant as long as there are “bigger fools” to buy the asset. While this may provide basis to make some profit as there are some other theory which is sufficient enough to argue the opinion that the value of any investment of value of any product is in the eyes of beholder and any price of the product and investment schemes can be justified as long as there are other investors willing to pay that price. There are many assets for which perception may be all that matter like crafts, sculpture, paintings etc. but a rational and logical investor does not buy every asset for aesthetic or emotional purpose rather financial assets are acquired for the expected cashflows from the investment.