Biases Flashcards
Affinity
Make irrationally uneconomical consumer choices or investment decisions based on how you believe a certain product or service will reflect your values.
Anchoring
Occurs when investors are influenced by purchase points or arbitrary price levels and cling to these numbers as they decide whether to buy or sell an investment.
Availability
A mental shortcut that causes people to estimate the probability of an outcome based on how prevalent or familiar that outcome appears in their lives.
Cognitive dissonance
The mental discomfort we feel when newly acquired information conflicts with preexisting understandings.
Confirmation
Cherry pick data to support a thesis, rather than objectively analyzing.
Conservatism
Emphasize original information more than new information, underreact to new information, and ignore information that is not consistent with our own view of the world.
Endowment
Assign greater value to an object you possess and may lose than an object of the same value that you don?t possess and have the potential to gain.
Framing
Tendency to respond to situations differently based on the context in which a choice is presented.
Herding
Buying when everyone else buys and/or when share price is rising, and vice versa.
Hindsight
Tendency to view events as having been more predictable, and thus actions more correct or incorrect, than was apparent as the situation was unfolding, which gives a false sense of security and can lead to excessive risk-taking.
Home country
Tendency to be more attracted to investments in domestic markets.
Illusion of control
Tendency to believe we can control or influence outcomes that we cannot.
Loss aversion
Feeling greater pain for a loss than for a gain.
Mental accounting
When people treat various sums of money differently based on where these sums are mentally categorized.
Outcome
De-emphasize the events preceding the outcomes and over-emphasize the outcome, which results in the quality of the decision being judged solely on its eventual outcome.
