Proceedings of the 2025 3rd International Academic Conference on Management Innovation and Economic Development (MIED 2025)

<Previous Article In Volume
Next Article In Volume>

Cognitive and Emotional Dynamics in Investment: A Review of Behavioral Finance Theories and Modern Applications

Authors
Qi Wu1, *
1New York University, 50 West 4th Street, New York, NY, 10012, USA
*Corresponding author. Email: qw2282@nyu.edu
Corresponding Author
Qi Wu
Available Online 17 September 2025.
DOI
10.2991/978-94-6463-835-6_29How to use a DOI?
Keywords
Behavioral Finance; Modern Portfolio Theory; Adaptive Market Hypothesis; Emotional Decision Making
Abstract

This paper provides a comprehensive literature review of behavioral finance, a field that challenges the traditional assumptions of investor rationality by incorporating insights from psychology, neuroscience, and behavioral economics. Drawing on foundational theories such as Prospect Theory, Mental Accounting, and the Representativeness Heuristic, the paper outlines how investors systematically deviate from rational expectations through biases like herding, overconfidence, and loss aversion. It further explores recent advancements including the Adaptive Market Hypothesis, emotional influences on decision-making, neurofinance, and behavioral responses during financial crises and in emerging asset classes like cryptocurrency. Through qualitative content analysis of high-impact academic studies, this research synthesizes empirical evidence that demonstrates the pervasive role of cognitive and emotional biases in shaping investment behavior, portfolio allocation, and market anomalies. The findings highlight the limitations of classical financial models in real-world contexts and emphasize the importance of incorporating behavioral insights into financial education, regulatory frameworks, and algorithmic trading systems. Ultimately, the paper advocates for more adaptive and psychologically informed approaches to better understand and predict market behavior in dynamic and complex evolving financial environments.

Copyright
© 2025 The Author(s)
Open Access
Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

Download article (PDF)

<Previous Article In Volume
Next Article In Volume>
Volume Title
Proceedings of the 2025 3rd International Academic Conference on Management Innovation and Economic Development (MIED 2025)
Series
Advances in Economics, Business and Management Research
Publication Date
17 September 2025
ISBN
978-94-6463-835-6
ISSN
2352-5428
DOI
10.2991/978-94-6463-835-6_29How to use a DOI?
Copyright
© 2025 The Author(s)
Open Access
Open Access This chapter is licensed under the terms of the Creative Commons Attribution-NonCommercial 4.0 International License (http://creativecommons.org/licenses/by-nc/4.0/), which permits any noncommercial use, sharing, adaptation, distribution and reproduction in any medium or format, as long as you give appropriate credit to the original author(s) and the source, provide a link to the Creative Commons license and indicate if changes were made.

Cite this article

risenwbib
TY  - CONF
AU  - Qi Wu
PY  - 2025
DA  - 2025/09/17
TI  - Cognitive and Emotional Dynamics in Investment: A Review of Behavioral Finance Theories and Modern Applications
BT  - Proceedings of the 2025 3rd International Academic Conference on Management Innovation and Economic Development (MIED 2025)
PB  - Atlantis Press
SP  - 267
EP  - 276
SN  - 2352-5428
UR  - https://doi.org/10.2991/978-94-6463-835-6_29
DO  - 10.2991/978-94-6463-835-6_29
ID  - Wu2025
ER  -