THE ROLE OF HUMAN EMOTION IN INVESTMENT DECISIONS: A NEUROFINANCE PERSPECTIVE

Abstract

For decades, the traditional finance model portrayed investors as rational, emotionless beings making purely logical decisions based on available information. However, mounting evidence from psychology and neuroscience suggests that emotions play a significant and often irrational role in investment behavior. This article explores the intersection of neurofinance and investment decision-making, examining how emotions influence our financial choices through the lens of brain activity, neurotransmitters, and specific emotional states. We delve into the neural mechanisms of fear, greed, and overconfidence, analyzing their impact on risk perception, asset allocation, and trading patterns. We further discuss the moderating role of emotional intelligence and stress in investment outcomes. Finally, we consider the implications for individual investors, financial advisors, and policymakers, highlighting strategies to harness the positive aspects of emotions while mitigating their detrimental effects.