CONCLUSION

Behavioral Finance is a recently developing ap­proach in finance literature. And as a result of its challenging findings to the modern finance theory it is mainly ignored across the traditional academic environment.

Behavioral Finance and Efficient Market Hypothesis are not competing approaches, but rather complementary approaches. The merger of these two areas of research is an inevitable event which is very possible to occur in the near future. Finally it should be noted that behavioral finance is not a separate discipline, but will in­creasingly become part of mainstream finance. The real markets especially financial markets are so complicated, without the depth and breadth of different approaches combined it will not be pos­sible to capture the magic of real markets.

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KEY TERMS AND DEFINITIONS

Behavioral Finance: A field of finance that proposes psychology-based theories to explain movements in stock markets. Within behavioral finance, it is accepted that the investors are that smart as they assumed to be.

Cognitive Biases: Cognitive bias refers to an impairment of judgment leading to irrationality and perceptual distortion. It may occur as a result of moral and emotional motivation, limited access to information or influences of the society leading to a decision or judgment that is not fair.

Noise Trading: A rational agent is an agent who has clear preferences, models uncertainty via expected values, and always chooses to perform the action with the optimal expected outcome for itself from among all available actions.

Prospect Theory: This theory describes how individuals evaluate losses and gains. The theory is proposed by Daniel Kahneman and Amos Tversky.

This work was previously published in Global Strategies in Banking and Finance, edited by Hasan Dincer and Umit Hacioglu, pages 254-271, copyright 2014 by Business Science Reference (an imprint of IGI Global).