ABSTRACT
This chapter shows how impulsive (or emotional) side of the brain often controls our daily financial decisions. It offers a brief introduction to behavioral finance followed by descriptions of the specific impact of moods, feelings, and thoughts on financial decision-making. Judgment is interpretation of the facts, given past experiences, personalities, and reasoning. Judgment should blend what our hearts and our mind are thinking. Too much of one can overpower the other, creating less than optimal decisions. Emotion is a psychological state often based on feelings rather than active thought. Cognition, however, is the mental process with which the peoples collect, analyze, and act on our thoughts and emotions. Emotion and cognition are tightly linked, and both result in behavior, which is the action itself. Strong positive and negative emotions can cloud our judgment, causing the peoples to spend, save, invest, or give differently than might otherwise in a more neutral feeling or mood.
