Influence of Human Emotions on Financial Decision-making

The current paper is a review of the shift that was caused by the advent of empirical findings from the field of behavioural economics that posed as a critique to the neoclassical paradigm. Behavioural economics emerged as a discipline that borrowed largely from various other social sciences to fortify the models used by economists to theorise human decision-models. Various studies have been cited and their results have been consolidated to present the findings from psychological and neurological perspectives that further the understanding of behavioural variables. Cognitive biases and their influence on decision-making is briefly reviewed before moving on to the “how” and “what” of emotions in the same context. The two major categories of emotions highlighted in this review are integral and incidental, for each the discussion prevails around their function and influence on financial decision-making. Areas within the field with a propensity for further research have been highlighted, and applied and theoretical implications have been addressed to conclude the review.