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According to behavioural economists, financial decisions are often influenced by psychological biases, hindering our ability to reach financial goals.
Being aware of them helps to make more mindful decisions. Let's have a look at some of these psychological biases!
It is when you feel the pain of loss more intensely than the pleasure of a similar gain. For instance, the pain of losing ₹1,000 is greater than the joy of gaining the same amount.
It's the tendency to seek out information that supports one’s existing beliefs. For example, an investor may focus on good news about a stock they own and ignore the bad news.
It refers to people’s tendency to copy others’ behaviour. For instance, an investor may buy a particular stock just because others are, without analysing it themselves.
It is a tendency to judge something based on how similar it is to a stereotype. An investor may assume a startup will succeed because it shares traits with a successful company.
It is a bias where the first piece of information influences decision-making, even if it's irrelevant. E.g., an investor “anchors” to a stock's initial price, ignoring market changes.
It's a bias where people overestimate their skills and talents. As per research, overconfident investors tend to have higher transaction costs and lower returns.
It’s a tendency to value the same amount of money differently based on its source. E.g., people often spend lottery winnings more freely than money earned through work.
Thanks for reading!
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