Theoretical Overview of Behavioral Finance

Abstract

There are a large number of studies in the field of behavioral finance carried out at national and international level. Despite these numerous studies, however, there is no general evaluation of behavioral finance theory from the point of view of methodological and theoretical perspectives. This study evaluates and compares the basic concepts and theories from the perspectives in order to make the related deficiencies. For this purpose, the concepts of homoeconomicus, utility, rational - normal investors and effective market hypothesis, knowledge and mathematical approach, risk, emotion and decision making are discussed. Neoclassical finance and behavioral finance are examined in this framework and basic assumptions are critical. The assessments show that finance has shown its transformation since the 1960s after 1980, and this paradigm shift has led to the birth and development of behavioral finance theory. With the paradigm shift, financial markets have not changed but our financial markets have changed without understanding.