Behavioral Finance, defined

Behavioral Finance is the study of psychology's influence on financial decisions.

It is a relatively new social science, but is considered important enough to offer a Nobel prize. Workshop in Behavioral Finance notes the importance of it's role:

"Research in behavioral finance has important applications. The research can help guide portfolio allocation decisions, both by helping us to understand the kinds of errors that investors tend to make in managing their portfolios, and also by allowing us to understand better how to locate profit opportunities for investment managers. Beyond this, understanding the psychological foundation of human behavior in financial markets facilitates the formulation of macroeconomic policy and the devising of new financial institutions."

It also has implications when advisors design portfolio's for clients-and then help them to stick with their plan. If the average advisor turnover is seven years, clearly there must be better work done in this area so clients feel better about staying with their plan (if it is a good one-more on that later), and ultimately, why they should stay with their advisor.