Behavioral Finance & Psychology Flashcards
All things behavioral finance and Client Psychology
What is “Behavioral Finance?”
The study of how investors behave and why they make the decisions they do.
What is “Client Psychology?”
The subconscious forces that influence a client’s decisions.
What is “Bias?”
A personal and sometimes unreasoned judgment.
What is “Recency Bias?”
The tendency to weigh recent information more heavily than other information.
What is “Negativity Bias?”
The tendency to place more reliance on negative events and thoughts than positive ones.
What is “Loss Aversion Bias?”
People prefer to avoid losses even more than they desire equivalent gains.
What is “Herd Mentality Bias?”
The tendency to follow the crowd even when we should not.
What is “Overconfidence Bias?”
“I am a genius and everyone likes me; that other guy is average AND more likely to cancer than me.”
What is “Framing Bias?”
The tendency to react differently to information based on how it is presented or “positioned.”
What is “Anchoring?”
The psychological tendency to put too much confidence in one piece of information (often first we receive) and too little confidence in other pieces of information.
What is a “Hueristic?”
A mental shortcut used to make decisions quickly.
What is the “Availability Hueristic?”
The tendency to assign a higher level of importance to data based on the ease of recall.
What is the “Representativeness Hueristic?”
A mental shortcut in which we make judgements by comparing new info to info we expect or already possess.
Name the two powerful psychological influences that cause people to “buy high and sell low.”
- Herd Mentality
- Loss Aversion
What is the PAUSE method?
P - Pause, take a breath, and slow everything down
A - Acknowledge their emotion (but not point of view)
U - Understand their POV
S - Search for alternative answers to their POV
E - Evaluate the best course of action
