Terminology Flashcards
The Tendency of investors to become attached to a specific price as the fair value of a holding
Anchoring
Holding onto an investment for emotional reasons rather than considering more practical applications for the inheritance
Attachment bias
The challenge of reconciling two opposing beliefs
Cognitive dissonance
The natural human tendency to accept any information that confirms our preconceived position or opinion and to disregard any information that does not support that preconceived notion
Confirmation bias
Investors tend to diversify evenly across whatever options are presented to them
Diversification errors
The tendency to take no action rather than risk making the wrong one
Fear of regret
An individual erroneously believes that the onset of a certain random event is likely to happen following an event or a series of events
Gambler’s fallacy
The tendency for individuals to mimic the actions of a larger group can also be described as fear of missing out (FOMO).
Herd behavior
The 20/20 vision we have when looking at a past event and thinking we understand it, when in reality we may not
Hindsight bias
When the fear of making an error outweighs the potential value of success in a decision made in a timely manner.
Analysis paralysis (or paralysis by analysis)
Given the choice between a sure gain and a chance to win more, people usually opt for the sure gain.
Loss aversion and risk taking
This describes the different ways people evaluate losses and gains. Researchers have found that losses have a much greater negative impact than a commensurate gain will have positive.
Prospect theory
Entails looking at sums of money differently, depending on their source or the intended use.
Mental accounting
The tendency to make a decision based on the desired outcome rather than on the probability of that outcome.
Outcome bias
The tendency to place too much emphasis on one’s own abilities. It often works hand-in-hand with confirmation bias.
Overconfidence
