Brain Flashcards
Errors in financial judgement
Bias
Statistical, info or memory errors. Result from subconscious mental procedures for processing info.
Cognitive bias
Illogical or distorted reasoning, difficult to correct
Emotional bias
Overestimate predictive abilities
Overconfidence
C
Representativeness
C
Internal classification system
Judging relatively vs absolute
Anchoring and adjustment
C
Cognitive dissonance
Conflicts with pre existing beliefs, will go to great lengths to convince themselves they have made the right decision
C
Ppl to estimate probability of outcome based on how prevalent it is in their lives
Availability
C
Self-attribution
Ascribing successes to own hard work or ability and their failures to outside factors
C
Illusion of control
Thinking they can control random outcomes
C
Conservatisim
Hold onto belief and do not update
C
Ambiguity aversion
Avoid risk whn probability distributions seem uncertain
C
Mental accounting
Tendency to categorize and evaluate outcomes by grouping assets into non tangible mental accounts
C
Confirmation
tendency to search confirming prior belief
C
Hindsight
After outcome, ppl think it was predictable even though it was not
C
Recency bias
Greater importance to recent event
C
Sunk cost
Continue invest or spend despite new evidence shows expected cost of doing so exceeds benefit
C
Framing
Respond to various situations differently depending on the context
C
Endowment
More value on asset they hold
E
Self control
Money is most common
E
Optimism
Ppl tend to think they surpass the population mean
E
Loss aversion
Rather avoid losses than experience gains
E
Regret aversion
Avoid making decision because they fear making mistake
E
Dtatus quo
Stick with same when facing many options
E
