QUESTION 3 Behavioral finance attempts to understand and explain observed investor and market behaviors. This differs from traditional (standard) finance, which is based on hypotheses about how investors and markets should behave. In other words, behavioral finance differs from traditional finance in that it focuses on how investors and markets behave in practice rather than in theory. By focusing on actual behavior, behavioral researchers have observed that individuals make investment decisions in ways and with outcomes that differ from the approaches and outcomes of traditional finance. Required: Discuss how behaviors such as overconfidence, overoptimism, and confirmation bias can affect decision making (15 marks) b) Proponents of behavioral finance used three concepts to argue that markets are not efficient. Explain their arguments. (10 marks) (Total: 25 Marks) QUESTION 3 Behavioral finance attempts to understand and explain observed investor and market behaviors. This differs from traditional (standard) finance, which is based on hypotheses about how investors and markets should behave. In other words, behavioral finance differs from traditional finance in that it focuses on how investors and markets behave in practice rather than in theory. By focusing on actual behavior, behavioral researchers have observed that individuals make investment decisions in ways and with outcomes that differ from the approaches and outcomes of traditional finance. Required: Discuss how behaviors such as overconfidence, overoptimism, and confirmation bias can affect decision making (15 marks) b) Proponents of behavioral finance used three concepts to argue that markets are not efficient. Explain their arguments. (10 marks) (Total: 25 Marks)