Section 2, Module 5 Flashcards
What is Behavioural Finance
Theory that states that as human beings, investor are not necessarily rational or logical creatures. They are subject to personal belief and biases that leads to irrational and emotion choices
What is January Effect
Effect where stocks in generals, move abnormally higher during the month of January
What is behavioural biases
Systematic errors in financial judgement or imperfections in the perception of economic reality
What is Cognitive bias
It is technically a basic statistical, information processing or memory error which is normal. Example are that even in a funds that an immense amount of data concerning this, the customer will always choose the simplified version to make the choice
What is Emotional Bias
Opposite of Cognitive, they are a state where it can arise spontaneously without thoughts. Often physical expression, related to feeling, perception, elements, objects, relation.
What is Overconfidence
When people tend to overestimate both their predictive abilities and the precision of into they have been given. they thought something would happen but did not and dinit learn from that mistake as well
What is Representativeness bias
It is when an new information comes into play and it often is different information from what the person already has in their internal memory which causes a wrong understanding of the information
What is Cognitive dissonance
It is a state when there a mental imbalance when one thing contradicts with another. Like when there is a new thing that favors an old that you thought was a good one then the cognitive dissonance will try to relive the discomfort.
What is availability bias
It is when you believe you can guess a the probability of an outcome based on the number of time you see this outcome. Example, most people believe that shark attack are more frequent than injury from fallen airplane part. But its the opposite but the media will talk about more about shark attack which influences peoples.
What is endowment
It is people that place more value on an asset that they have rather than some that they do not hold property to.
What is Loss Aversion
People that feel a stronger impulse to avoid losses than to acquire gains.
What is regret aversion
Someone that avoids making decisions because they fear that what they choose will result in a bad decision.
What is Status Quo
It is an emotional bias that when some people face a wide variety of options, they will sometimes choose to keep things the same
