Behavioral finance can be defined as the field of finance that rejects the assumption made by traditional finance theories that humans always make rational decisions and instead examines the influence of emotional, psychological, and social factors on investment decisions. Behavioral finance is often overlooked in traditional finance literature. While traditional finance focuses on specific theories and standard teachings, behavioral finance investigates market practices and investor tendencies. Traditional finance literature does not typically discuss the behaviors or tendencies of individuals making financial decisions. In traditional economic theory, individuals are often constrained into a specific mold and expected to make decisions like rational machines. Common irrational deviations in human behavior are not taken into account. In contrast to classical economic and financial teachings, behavioral finance focuses on human behavior and psychology, addressing deviations in investment decisions. Individuals seek utility maximization as expressed in classical economic teachings in their financial decisions, but they also make decisions for emotional reasons such as satisfaction or pleasure.

One of the fundamental criticisms of behavioral finance is that traditional theories and definitions fall short in explaining human impulses and tendencies. Behavioral finance examines these tendencies under three main headings: Cognitive Biases, Emotional Biases, and Social Biases. In this section, we will first explore the core principles of behavioral finance and touch upon some of the criticisms it raises against traditional finance. Then, we will focus on important investor biases in behavioral finance, contributing to the understanding of financial decisions in the market within the framework of behavioral finance.