Emotional Finance: A New Paradigm in Investment Decisions

Abstract

Emotional finance explicitly sets out to examine how our emotions, both those of which we are conscious and more importantly, those unconscious, play a key role in all financial decisions. This new perspective in finance formally recognizes how the inherent uncertainty in the investment process and associated problems in predicting future outcomes inevitably unleashes powerful feelings of both excitement and anxiety. Emotional finance draws on the psychoanalytic understanding of the human mind and dynamic mental states to describe how unconscious processes drive investment decisions and are an integral part of all financial decision making. This article brings the basic concepts of emotional finance, and how investors take investment decision through psychoanalytic process.