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

Behavioural finance differs from traditional finance mainly because it:

Behavioural finance recognises that psychological and emotional factors influence investor decisions, so investors are not always rational. Traditional finance instead assumes rational utility-maximising investors and efficient markets, which behavioural finance shows can be violated systematically.

  1. ARecognises that investors may be influenced by psychological factors and are not always rationalCorrect
  2. BAssumes markets are always perfectly efficient and investors maximise utility
  3. CRejects the use of any statistical analysis in investing
  4. DApplies only to institutional investors and not to individuals

Explanation

Traditional finance assumes rational investors and efficient markets, whereas behavioural finance studies how cognitive and emotional factors cause systematic deviations. It does not reject statistics and applies to all investors.

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