Question 2

"Behavioural finance sits at the crossroads of finance, economics, psychology, social psychology, decisionmaking, science and neurology, to name but a few of the disciplines that make up its strange brew." Daniel Crosby, Personal Benchmark: Integrating Behavioural Finance and Investment Management.

(a) Using relevant examples, explain clearly the two building blocks of behavioural finance. (8 marks)

(b) Describe clearly any two biases identified within the behavioural finance literature. For the chosen biases, critically evaluate the evidence that has been put forward by researchers to explain these biases and discuss any implications these biases have for investing in financial markets . (25.3 marks)