In the research of Shleifor(1998), he found that influenced by the emotion of regret, fear and short-sight, investors usually undervalue the stock prices of the companies which were recently in the trouble. In the same reason, investors usually overvalue the stock prices of the companies that they believe would grow up very fast. However, the investors don¡¯t know whether these companies would become better or not. So, people are ultimately driven by their emotions, not their logic, they are often irrational in making investment decision.

University of Chicago economist Richard Thaler conducted a famous experiment in which he gave one group of his student coffee mugs and a second group money, then offered to buy mugs from the first and sell mugs to the second. Classical theory would predict that students selling the mugs would ask for about the same prices as the buyers would be willing to pay. But, in fact, the sellers asked for twice as much. Apparently, humans have an instinctive and "irrational" predisposition to hoard material wealth. And because of this ¡°irrational¡±, it would be difficult for the ¡°buyers¡± and the ¡°sellers¡± to get the some cognition of the price.

paper is organized as follows. Section 2 presents the nature of human being and discusses why investors are not rational. Section 3 presents the reason of human¡¯s irrationality. Section 4 summarizes the main results and presents conclusions.

2. Is the human being rational or not

Other than neo-classical finance theory, behavioral Finance theory uses the more mundane empirical observations and the experimental results of extensive studies in other social science disciplines such as psychology, sociology, and political science. Behavioral Finance theory assumes the preferences of investors are diversified and changeable and such preferences usually form during the

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