Investor Classification Model Based on Behavioural Finance Studies

In recent years there have been numerous research studies in the field of Behavioural finance. The findings can be used to better understand the decision-making process in dynamic and volatile environment in relation to high risk. Traditional theories have always based the decision processes in rationality even though practical research and evidence testifies otherwise. Since then, the field of Behavioural finance studies has matured and enabled the description of relevant circumstances and characteristics of decision making in financial investment that better explains both successful and unsuccessful risk management. The goal of this paper is to create a decision-making model for classification of investor propensity to risk based on recent behavioural finance studies. For the purpose of modelling this body of knowledge, a decision tree model will be used. The model itself will represent the knowledge on evaluating the behaviour of investors based both on current literature and practical experience. The resulting model can be used for evaluation of investor behaviour in both practical applications and further scientific research, as it will be demonstrated.