Behavioural finance Flashcards
What is Conservatism bias?
People maintain their prior views or forecast by inadequately considering new information
What are the 5 bias included in the belief perseverance bias?
RICH-C Representativeness Illusion of control Confirmation bias Hindsight bias Conservatism
What is representativeness bias?
Representativeness bias is people tend to classify new information based on past experience.
What is illusion of control?
Illusion of control is when people they have control or influence over outcome when in fact, they have none.
What is hindsight bias?
Hindsight bias is when people think they see past events as having been predictable
What are the 4 bias includes in processing bias?
FAMA Framing Anchoring Mental accounting Availability bias
What is anchoring?
Anchoring is when people generally begin by setting a default number then they adjust up and down to reflect the subsequent information and analysis
What is mental accounting?
Mental account is treating one sum of money differently, goal based investing
What is framing bias?
Framing bias is when answer a question differently based on the way it was asked
What is availability bias?
Availability bias is access the likelihood of an outcome based on how easily they can recall that information.
What is emotional bias?
Emotional bias is stem from impulse or intuition, it is very hard to be corrected and should just recognize it, and adapt to it
What is loss aversion bias? What are some of the behaviours of this bias?
Loss weights more than gains, suffer from the disposition effect, which is the tendency to realize gains early and delay recognizing losses.
Behavior: trade excessively, for stock has a loss has gambler mindset that it will break even; sell winner too soon and hold onto loser for too long.
What is overconfidence bias?
What are the two self attribution bias under overconfidence bias?
Overconfidence bias disillusion of knowledge bias, overconfidence of one’s own prediction or certainty
Self-enhancing & self-protecting
What is self-control bias? What are some of the behaviours of this bias?
Self-control bias is the lack of self-discipline for longer term goals (control own’s spending habit)
Behaviour: save insufficient for the futures, accept too much risk and cause asset allocation imbalance problems
What is status quo bias?
Status quo bias is do nothing instead of making a change
