Behavioural Finance Implications on Personal Investment Decisions Essay

Behavioural Finance Implications on Personal Investment Decisions - Essay Example This calls for better understanding and insight of the nature of human in the current global outlook, plus advancement of fine skills and the capability to achieve the best from investments. Furthermore, investors need to develop foresight, positive vision, drive and perseverance (BAKER, & NOFSINGER, 2010: p23). Investors vary in all features due to factors such as demographic factors, which entail educational achievement level, socio-economic background, sex, age, and race. The most critical hurdle faced by investors is in the region of investment choices. The most favourable investment decision is a vital consideration and should be proactive in nature. During the design of the investment portfolio, of key consideration should be their financial objectives, the level of risk tolerance, as well as other restrictions. Furthermore, they have to forecast the product mean-variance optimization. This procedure is best appropriate for institutional investors, and more often than not fails for people, who are vulnerable to behavioural prejudice. In the current circumstances, behavioural finance is increasingly attaining an integral position in the decision-making procedure, since it increasingly affects the performance of investors (SHEFRIN, 2007: p77). Investors can better their performance by identifying errors and biases of judgement, which are common to every human being. Comprehending the behavioural finance will play a vital role in enabling the investors to adopt a better investment mechanism and evade future repetition of costly errors. The relevant issues of this investigative study are how to reduce or abolish the psychological prejudices in investment decision procedure. According to the conventional financial theory, makers of decisions are logical. On the contrary, modern theories propose that the decision- making carried out by investors are not propelled by due deliberations (POMPIAN, 2012: p45). The decisions carried out by the investors are also freq uently inconsistent. In other words, decisions made by humans are prone to numerous cognitive illusions. They are categorised into two types heuristic decision process and process theory. Heuristic decision theory is a decision criterion through which the investors discover things for themselves. It refers to thumb rules, which people utilize to make decisions in uncertain and complicated situations (SCHINDLER, 2007: p86). In reality, the decision-making criteria of investors are not completely reasonable. This may be so even when the investors have gathered the necessary information and purposefully investigated, in which the emotional and mental aspects are entailed. They are not easy to distinguish. Though it may be beneficial sometimes, numerous times it may cause uninformed decision outcomes. First, it includes representativeness. The recent accomplishments of investors tend to proceed into the future (POMPIAN, 2012: p82). The propensity of investors to come up with decisions b ased on history experiences is called stereotype. Recent analyses are leaning towards the failure or success, in their profit projections, the nature of stereotype choices. Secondly, overconfidence is another factor. Several points of views surround confidence, as it accords more courage and is perceived as a key to prosperity. Even though,

Response Assignment Example | Topics and Well Written Essays - 250 words - 8

Response - Assignment Example However, Darrel uses it in the modern world to express emotions. For instance, the artist uses different textures and fabrics to express different emotions. According to the artist, the textures of a fabric affect people’s brains. By looking at the grains and length of stitches, one can imagine the texture of the fabrics. People are able to tell the texture of fabrics because of their usage of textile since the old times. In addition, Diana got his mixed media idea from the old art ideas of the 18th and 19th centuries. Girls in those times stitched words on pieces of fabrics. Diana borrowed this idea in combining paintings and graphic design. Currently, the concept of mixed media is used by many professional artists in various art forms such as collage and card making. The old mixed media ideas have also been applied in other forms of modern arts such as the multimedia art that combines audio and other non-visual elements