Behavioral finance: How are traders' financial decisions and performance impacted by behavioral biases under uncertainty?

Behavioral finance is the application of psychology to finance, dedicated to explaining anomalies in the financial market based on research and analysis of human behavior. This paper aims for studying from a conceptual side the main behavioral biases that impact traders operating in the financial market under uncertain circumstances. The current literature confirms the existence of cognitive and emotional biases, which could be caused by heuristics or framing faults impacting the decision-making process in investment and financing decisions alongside the performance of traders. In this vein, the findings affirm that although it is difficult to change people's emotions and control them completely, moreover the capacity for human introspection is limited, with the understanding of cognitive biases based on the knowledge and beliefs of the trader, the possibility of modifying or changing the individuals’ way of reasoning is more or less feasible in order to moderate their behaviors within the market. Behavioral finance admitting a certain degree of inefficiency in the markets, and the existence of factors that influence the behavior of the trader, is calling for a precise set of rules and trading plans (such as money management), besides the mental and psychological control essential to succeed in the financial market. This theoretical informative paper enters into a series of works that challenge investors' rationality assumption and inferences about the efficiency of financial market information.