Document Type : علمی - پژوهشی
Author
Professor, Department of economics, University of Mazandaran, Babolsar, Iran.
10.30471/mssh.2025.10364.2560
Abstract
There are theories in economics and social sciences that have led to many developments. The deep connection between the mind and human decision-making in the field of finance and investment seeks to achieve a new explanation for financial decision-making. This relationship is one of the most useful branches of behavioral and cognitive economics. Recent developments in cognitive economics in the context of the emergence and evolution of branches in neuroscience economics, cognitive laboratory economics, financial behavior and the behavior of economic agents in financial markets are very important topics from the perspective of cognitive psychology. After the initial formation of cognitive science, economists realized that they had to include the influence of personal emotions and experiences that arise with respect to the cultural and educational environment in economic theories. These theories are always influenced by the mental and intellectual states of humans in the path of change and evolution and all reactions in the financial market are under the influence of the dual stimuli of neurogenesis and neurodegeneration of the mind. Both stimuli that were previously consciously perceived and new stimuli that must be considered, because both are influenced by the nerves of the mind; and the recognition of individuals is the result of a complex mechanism and is influenced by the cultural and educational context.
Psychologists have been interested in the factors that influence the formation of perceptions and classification of objects in humans. When these perceptions become acceptable habits in behavior, the identification of this process has attracted the attention of psychologists to consider the formation of perceptions and repetitive habits accepted by individuals and society as a new achievement. This attention gave rise to numerous branches of cognitive science. Entering into these discussions in cognitive science and the actions and reactions in human behavior and decision-making and its impact on financial markets at the microeconomic and macroeconomic levels, led many researchers to seek to determine the role of the mind, emotions, and psychological states in behavior. As a result, if an action is successful, the faculty of perception considers it effective and accepts it as normal; otherwise, it forces the individual to re-evaluate and test the perception more carefully. This action continues by creating new actions until the correct and satisfactory results for the individual and society are achieved, so that it becomes a social action. Considering the role of the mind and emotions, this article sought to present the theory of Friedrich Hayek in the foundations of behavioral finance.
Although behavioral finance is very close to cognitive economics, it relies on the theory of cognition and dual nature, neurobiological and path-dependent. Institutions and norms are one of the important aspects of behavioral finance. However, structurally, mistakes and distortions are inevitable in human decision-making and financial institutional frameworks. From the point of view of people, markets face different expectations in current and future prices, and every effective factor in the market, such as demanders and suppliers, forms their expectations based on their own beliefs and goals and the goals and beliefs of others. Over time, the demanders and suppliers, individually or collectively, form the rules of their hypothetical expectations. These expectations produce at least the following four achievements for financial markets:
The first consequence is that attention to price impulses and events in the financial market is based on perceptions through organized knowledge of the past in memory. In the first step, these price impulses and events formed in the minds of individuals are reviewed in contradiction to past beliefs. Then, after standardizing the empirical information as findings and personal experiences, it revises the past knowledge. The main point in the exchange of information in the financial market is the continuous correction of the market and decision-making in this field in the financial markets.
The second consequence is to measure the degree of interdependence between experience and future expectations among suppliers and demanders in the financial market. It is a communication of the type of uncertainty in the market to predict the future. The conflict between the inherent need of each person in terms of information in the market and the expectations of other people in the market and their degree of dependence may lead the market from behavioral stability towards instability. In this case, the market will fluctuate.
The third consequence is acceptable valuation between two different streams in financial decision-making from a social point of view. The first stream: The influence of individuals' emotional and psychological states is due to internal beliefs. Internal beliefs, if unstable in terms of cognitive economics, cause financial markets to fail.
1. The first stream: The influence of individuals' emotional and psychological states is due to internal beliefs. Internal beliefs, if unstable in terms of cognitive economics, cause financial markets to fail.
2. The second flow: investigating the fear of not selling financial bonds and not liquidating the bonds in the market. This fear increases the risk-taking. This psychological state misestimates the financial market profit. When the reduction of profit in the new period is created in the market, the market actors lose their confidence. In this case, the financial market enters a period of cyclical and instability.
The fourth consequence is the formation of a coalition group in the financial market. Market players with common ideas and different emotions and psychology; seek to form coalitions with uniform expectations. This coalition is effective in the formation of knowledge in the market and decision-making. Proponents of Hayek's theory in the field of behavioral finance consider subjective and path-dependent beliefs to be effective in decision-making in the financial market. The achievements of Hayek's theory of knowledge and cognition, despite the dual concept of neurobiological influence and path dependence, were able to attract the attention of cognitive economists.
Modern financial behavioral researches state the fact that financial markets play a role in shaping human behavior on two levels of subjectivity and external environment. With these two levels, the differences between traditional markets and financial markets should be distinguished. Both in traditional and modern markets, the general rule is that markets are an institutional phenomenon. This feature creates a positive emotional impact on market brokers. The fact that the codified knowledge and specialized intelligence of individuals in the financial market are influenced by emotions is one of the important achievements of cognitive economics. Studies in financial behaviorism have shown that the function of specialized intelligence will lead to systematic errors in the financial market due to emotional and psychological understanding errors.
1. The question of how suppliers and demanders react is important.
2. How do agents and brokers benefit from the success of certain firms in the market?
3. Alternatively, when will the suppliers and demanders revise their beliefs?
4. If the market needs adjustment, how does the adjuster correct his findings in the market?
These are the most important points that financial behaviorists should pay attention to in the market to face the least systematic error in decision-making. Points that the traditional market does not pay much attention to these topics. In general, cognitive economics of finance should be considered a new horizon in the evolution of the traditional classical market.
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