Behavioural finance and the decision-making process in financial markets

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Investment decision-making is influenced by various behavioral biases, as demonstrated through simulations with university students, MBA students, financial executives, and physicians. Key biases identified include the donation effect, where participants hesitate to sell received assets despite better options; the disposition effect, leading to early sales of winning assets and delayed sales of losing ones; fear of regret, prompting purchases of previously missed assets; and approach, where problem framing alters investment decisions. These findings are rooted in Behavioral Finance theories, particularly Prospect Theory.