Behavioral finance is the study of how psychology affects investor behavior and financial markets. The study of behavioral finance relies on the assumption that investors and other financial decision-makers do not always behave rationally and instead often make choices based on cognitive biases or emotional responses; in turn, researchers in the field study how psychological and emotional forces can shape financial markets at scale.
Though the field tends to examine financial decision-making through a market-based lens, some of its lessons can apply to individuals trying to make sense of their own financial decision-making. A related field, financial psychology, looks more closely at the cognitive, social, and emotional factors that affect individuals’ relationships with money.