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Financial psychology is a relatively young branch of psychology. It investigates how people behave and experience when dealing with money or money-related products. This science focuses primarily on the perception and processing of information related to financial products.

In the financial sector, the research area of Behavorial Finance has stood out. This field of research emerged in the early eighties in the USA. It combines traditional economic research methods with expert knowledge of psychology. The research results of Behavioral Finance can help private investors and professionals to better understand their actual motives for investment decisions on the speculative capital market. They make it clear according to which patterns of thought and behaviour the players usually act.

Behavioral Finance assumes that investors act in an illogical way, mainly due to unconscious behavior. There is a well-known saying: "If you want to be smarter than the market, you have already lost. If you are aware of your irrational behaviour, you have a chance".

The fact that stock market events do not result exclusively from rational behaviour was described by the eminent economic theorist John Maynard Keynes as early as 1936 in his major work "The General Theory of Employment, Interest and Money". However, the true causes of irrational behaviour in risky transactions were proven in 1979 by the research paper "Prospect Theory". The two economists Daniel Kahneman and Amos Tversky recognized that people usually do not like risk - unless they are about to lose. Then they love risk. This "Prospect Theory" by Kahneman and Tversky, which is the foundation of modern finance, was awarded the Nobel Prize for Economics in 2002.

In the following years, Richard Thaler, Hersh Shefrin, Robert Shiller, Terence Odean and Martin Weber provided further in-depth knowledge in the field of behavioural economics.

Another key finding of Behavioral Finance research is that speculatively oriented traders are consciously or unconsciously guided primarily by their emotions. This inevitably leads to (wrong) decisions. Typical emotions are the fear of losing money when things are going badly and the greed for more money when things are going well.

Man has the urge to want to control events with the help of his knowledge. But precisely this is not possible on the speculative capital market, because the course of stock market prices is uncontrollable. The only thing the investor can control is himself, provided that he actively works on it. However, since the trader prefers the fast track, he is often not willing to go the long way of his own personal development. This usually takes a lot of time, sometimes months or even years. However, it is clear that the main reason for success in stock market trading is to be found on the mental side.

Typical thinking and behavioral patterns of Behavioral Finance research are Cognitive dissonance, framing effect, sunk cost effect and heuristics. These are discussed in more detail in the following chapters.