What is the difference between behavioral finance and traditional finance?

What is the difference between behavioral finance and traditional finance Introduction: The Diverse Vistas of Finance Hello and welcome! Finance, as a field, encompasses various perspectives. Today, we'll explore the contrasting approaches of behavioral finance and traditional finance, shedding light on their distinct viewpoints and applications. Traditional Finance: The Foundation Traditional finance, also known as neoclassical finance, is based on the principles of rationality and efficiency. It assumes that market participants are rational decision-makers, aiming to maximize their wealth. This approach relies on mathematical models and statistical tools to analyze financial data and make predictions. Behavioral Finance: Unveiling the Human Element In contrast, behavioral finance acknowledges that human beings are not always rational. Emotions, biases, and cognitive limitations often influence our decisions. This branch of finance explores the psychological factors that impact market behavior and investment choices. By understanding these aspects, it aims to enhance our comprehension of financial markets. Market Anomalies: Challenging Traditional Assumptions One of the key contributions of behavioral finance is the identification of market anomalies. These are instances where asset prices deviate from their fundamental values, often due to psychological factors.