Behavioural Finance Flashcards
Types of perseverance biases 6
- conservatism
- confirmation
- cognitive dissonance
- hindsight
- illusion of control
- representativeness
Types of Information processing biases 6
- Anchoring and adjustment
- Availability/ familiarity/ frequency/ saliency/ recency
- Framing
- Self-attribution
- Sunk-cost
- Outcome
Types of Emotional biases 8
- Affinity
- Disposition
- Endowment
- Loss aversion
- Overconfidence
- Regret aversion
- Self-control
- Status quo
Conservatism bias
the tendency to revise one’s belief insufficiently when presented with new evidence
Confirmation bias
the tendency to interpret information in a way that confirms one preconceptions
Cognitive dissonance
tendency to experience stress or discomfort when holding two or more contradictory ideas, beliefs or values at the same time, or when performing an action contradictory to one’s ideas, beliefs or values, or when confronted by new information that contradicts existing ideas, beliefs or values
Hindsight bias
the belief that past events were predictable at the time they occurred
Illusion of control
the overestimation of one’s control over external events
Representativeness bias
the tendency to classify things based on a few characteristics without accounting for the base rates of those characteristics
Anchoring and adjustment
the tendency to rely heavily on one piece of information when making a decision
Availability / familiarity / frequency / saliency / recency bias
the tendency to overestimate the likelihood of events that are more easily recalled given the recency with which they occurred or the emotional charge they hold
Framing bias
the tendency to draw different conclusions from different presentations of the same information
Self-attribution bias
the tendency to claim more responsibility for successes than failures
Sunk-cost bias
the decision to invest or spend money, time, effort, etc. despite new evidence that shows that the expected cost of doing so exceeds the expected benefits
Outcome bias
the tendency to judge a decision by its eventual outcome instead of based on the quality of the decision at the time it was made
Affinity bias
the tendency to be drawn to those people, things or decisions that one views as being similar to themselves
Disposition bias
the tendency to sell an asset that has accumulated in value and resist selling an asset that has declined in value
Endowment bias
the tendency to overvalue an object because they possess it
Loss aversion bias
the tendency to view losses as more painful than similar amounts of gains
Overconfidence bias
the tendency to be overly sure of oneself and their ideas
Regret aversion bias
the tendency to avoid making decisions for fear of experiencing regret
Self-control bias
the tendency to choose those actions that provide gratification in the short-term over the long-term
Status quo bias
the tendency to choose to maintain the current situation
Factors that impact biases
Culture Religious and spiritual beliefs Gender Biology Learned behaviour
Availability heuristic
based on recently acquired information
Representativeness heuristic
conclusion based on similar traits or industry
Anchoring and adjustment heuristic
anchoring to a specific piece of information and adjusting expectations
