Behavioural Finance series summary

For the past one week, I have been writing about the various biases, fallacies and tendencies of people when it comes to money and investing. If you missed them, here are the links to the posts.

  • Anchoring Bias – The first number or information you see plays an important role in the decision you make and will be close to that number.
  • Loss Aversion and Sunk Cost Fallacy – The tendency to make decisions so that to avoid incurring losses (even as low as 1¢).
  • Confirmation & Hindsight Bias – You will always favour information that suits your beliefs or investment and hate seeing the opposite view even if it is the truth.
  • Gambler’s Fallacy – The feeling you get that you will definitely win this time or the stock has been falling down for a long time that it will soon turn around.
  • Overreaction and Availability Bias – Any event that is fresh in your memory affects your decisions, causing you to overreact to the news – be it good or bad.
  • Regret Aversion Bias – Fear of regret from any decisions causes you to miss a lot of opportunities and also lead you to make worser choices.

These are not the only biases that affects us. There are many more and the field of Behavioural Finance and Psychology in Money is vast. Check out the list of Cognitive Biases that affects us in general.

Always remember that you are not special. Every human is susceptible to these biases and the only way to avoid them all is to use critical thinking and not taking decisions in a hurry. Identify these biases, apply your knowledge and you are sure to become a better investor than most others.

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