Behavioral finance represents the marriage of traditional financial theory and psychological principles. Traditional financial theory posits that economic actors are fully rational, making unbiased, wealth-maximizing decisions after considering all available information. Of course, we all know that the economic world does not operate in that antiseptic fashion. Too often, investors are their own worst enemies because they let their feelings get in the way. Many make wealth-destroying decisions that, after the fact, are all too predictable.
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