The central assumption of the traditional finance model is that people are rational. The behavioral finance model , however , argues that people suffer from cognitive and emotional biases and act in a seemingly irrational manner. The important heuristic-driven biases and cognitive errors that impair judgment are : representativeness, overconfidence, anchoring, aversion to ambiguity, and innumeracy. The form used to describe a problem has a bearing on decision making, Frame dependence stems from a mix of cognitive and emotional factors. The prospects theory describes how people frame and value a decision involving uncertainty. People feel more for a pain from a loss than the pleasure from an equal gain-about two and half times as strongly. This phenomenon is referred to as loss aversion . People tend to separate their money into various mental accounts and treat a rupee in one account differently from a rupee in another because each account has a different significance to