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NISM Certifications · NISM-Series-X-B: Investment Adviser (Level 2) · Basics of Behavioural Finance

Behavioural finance differs from standard finance theory mainly because it:

Behavioural finance differs because it recognises that psychological factors, such as biases and emotions, influence investor decisions, so people may not always act rationally. Standard finance instead assumes rational investors and efficient markets. Behavioural finance does not discard risk preferences or rely only on mathematical models.

  1. ARecognises that investors can be influenced by psychological factors and may not always act rationallyCorrect
  2. BAssumes all investors are rational and markets are always efficient
  3. CRelies only on mathematical models of risk
  4. DRejects the idea that investors have any risk preferences

Explanation

Standard finance assumes rational investors and efficient markets. Behavioural finance incorporates psychology, showing that biases and emotions can lead to systematic deviations from rational decisions. It does not reject risk preferences.

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