If you’ve read the seminal book Freakonomics you’ll already know what this is all about. In a nutshell, behavioural economics is about understanding the psychology that drives our choices. It also spawned the notion of “nudge”. You’ve probably been nudged.
A prime example was the government’s auto-enrolment pensions scheme. Instead of forcing everyone to save into a pension, it opted them in, suspecting (with the help of behavioural science) that few would bother to opt out. This was inspired by the 2009 book Nudge, co-authored by Nobel prize winner Richard Thaler.
Behavioural investing just applies this science to the markets. It’s about exploiting the emotional decisions of others to profit – buying the stocks that others have irrationally shunned. This forms the basis of value investing.