Distorted financial behaviors resulting from behavioral decision-making biases.

Abstract

To study the psychological patterns of irrational decision-making affecting financial phenomena, focusing on the behavior of investors in the Thai stock market and how irrationality leads to distorted investment goals. The objective is to present knowledge and information that helps readers understand cognitive biases and behaviors as obstacles to sound decision-making. Furthermore, it presents the concept of Noise, disturbances arising from within oneself and external environmental factors. This encourages individuals to pause and contemplate before making certain decisions or even ponder rational and trustworthy principles. The author has synthesized research, drawing from both experimental psychology and behavioral economics, focusing on the works of Professor Daniel Kahneman and various other researchers. This research has compiled instances of financial phenomena related to the theory of prospect theory, which has evolved from the utility theory, a fundamental concept in economics. Notably, the research findings underline that "people tend to feel the impact of losses more strongly than gains, up to twice as much." It further explores the concept of "loss aversion or the fear of regret". The writer perceives that biases in financial decision-making are driven by a"fear-based bias" and a bold front led by greed but harboring underlying fears. These factors lead to various financial phenomena, such as mental accounting. Therefore, avoiding errors benefits emotional control and makes the most “Valid” and “Reliability” decisions possible.