Volume: 4, Issue: 2
INTRODUCTION
Behavioural Economics and Behavioural Finance use the theoretical foundations of psychology and analytical applications of psychometrics to investigate what happens in markets when some of the agents exhibit limitations and complications in their (human) behaviour. This can be termed as iJTational behaviour contrary to rational expectations behaviour assumed in financial theory. The standard neoclassical economic analysis assumes that human beings are rational and behave in such a manner those they would like to maximize their satisfaction levels. The assumption of 'rational' behaviour has enabled economists in deriving several theories relating to consumer behaviour. This has also provided a basic platform for understanding the behaviour of consumers in various financial markets. These developments also helped as a powerful tool for economic analysis. However, in reality whether this assumption is valid isa big question mark. Since behaviour of humans in real life situations are different from rational behaviour assumption, conclusions based on this assumption could lead to unrealistic economic analysis and policy making.
