rational-financial-decisionmaking

Rational financial decision-making

LGT Bank in Liechtenstein''s Asian CIO explains how to make rational investment decisions in the face of inefficient markets.

Too many investment theories and concepts appear logical at face value, but their application presents difficulties that prevent optimal return for investors. The study of behavioural finance has blossomed in the past 15 years apparently as a result of attempts to explain how emotive factors and human psychology affect the way financial decision-making is carried out. In fact, the most difficult aspect of successful investing deals with managing human emotions and the errors and biases those emotions can engender.

Biases of judgement and decision-making have often been referred to as cognitive illusions and therefore, relying on one's intuitive reasoning will be insufficient in preventing the pitfalls of such illusions. The aim...

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