Behavioral finance is the study of psychological biases that can influence investor behavior and by extension the stock market. "(It) is about understanding how people make decisions," says Kate Mielitz, accredited financial counselor and assistant professor of family financial planning at Oklahoma State University. "People are not rational, and because we are not rational, we don't make perfect economic decisions."
Not only are we inherently irrational, but we're also highly emotional beings. We assign emotions to our financial decisions which can impact our financial decisions, Mielitz says. If you get an inheritance, you're apt to treat it differently than pay from a job, even though both are just a form of income.