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Understanding Market Behavior: The Psychological Forces Driving Financial Decisions

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  • Muhammed Zakir Hossain

    (Associate Professor, Department of Business Studies, State University of Bangladesh, Bangladesh)

Abstract

This study examines the influence of cognitive biases, emotions, social factors, and behavioral triggers on market behavior, seeking to integrate traditional economic theories with behavioral finance. This study utilizes a qualitative research methodology, drawing on literature, case studies, and empirical evidence to analyze Prospect Theory, herd behavior, and real -world occurrences such as the GameStop short squeeze and the 2008 financial crisis, thereby demonstrating the impact of behavioral concepts on market dynamics. The results indicate that cognitive biases, including overconfidence and loss aversion, emotional influences such as fear and greed, and social factors, especially exacerbated by digital pl atforms, substantially affect market results, encompassing speculative bubbles and crashes. The study underscores the significance of psychological insights in comprehending market efficiency and provides valuable implications for investors, policymakers, and analysts. Furthermore, it tackles deficiencies in comprehending collective psychological motivators and technological and social trends, offering a thorough framework for the analysis of market behavior in both academic and practical contexts.

Suggested Citation

  • Muhammed Zakir Hossain, 2026. "Understanding Market Behavior: The Psychological Forces Driving Financial Decisions," Post-Print hal-05736622, HAL.
    • Handle: RePEc:hal:journl:hal-05736622
    DOI: 10.59324/ejmeb.2026.3(2).20
    as

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