Traditional Finance to Behavioural Finance to Neurofinance: A Journey and Its Implications for Financial Education

Abstract

Abstract—The outlook towards Finance evolved significantly over the past few decades, moving from the assumptions of traditional theories like the Efficient Market theory, Capital Asset Pricing theory to more interdisciplinary approaches that integrate psychology and more recently on neuroscience. Traditional finance is built on the foundation that investors are rational decision-makers who seek to maximize utility with complete access to information. In reality however, real-world financial behaviour often deviates from these assumptions. This gap led to the emergence of behavioural finance, which incorporates psychological insights to explain how cognitive biases, emotions, and heuristics influence financial decisionmaking. The evolution did not stop there. With advancements in brain-imaging technologies, neuroscience has developed into a leading area to study neural mechanisms underlying financial decisions, popularly known as Neurofinance. By examining how different regions of the brain respond to risk, reward, and uncertainty, Neurofinance provides deeper insights into investor behaviour beyond observable actions.

This conceptual study traces the intellectual journey from traditional finance to behavioural finance and finally to Neurofinance. The paper highlights how each stage has expanded the understanding of financial decision-making. More importantly, the study explores how these insights can be incorporated into financial education. Integrating behavioural and Neurofinance concepts into academic curricula can help students develop a realistic understanding of financial markets, recognize cognitive biases, and make more informed financial decisions.

The study puts forth that incorporating interdisciplinary perspectives into finance education will not only improve financial literacy but also equip future professionals with better analytical and decision-making skills. Thus, the transition from traditional finance to Neurofinance represents not merely a theoretical evolution but also a significant opportunity for transforming financial education.