Classical economic theory assumes that people make good use of the information that is available to them and that they act in an unbiased manner. There is, however, too much evidence to the contrary. Here's how you can use the Theories of Behavioral Finance to make better investments. Remember that increasing levels of confidence frequently show no correlation with greater success. Many investors believe that they can consistently time the financial markets when there is an overwhelming amount of evidence to the contrary.
People typically give too much weight to recent experience.
People often see other people's decisions as the result of disposition but they see their own choices as rational. The stock market is a leading indicator . Thus much of what you read in the print and online media has already been discounted in stock prices. Remember, just because you think you know the company pretty well doesn't necessarily mean that your chances of making a profitable investment have significantly improved. That is the lesson of Behavioral Finance.