Myopic loss aversion
Investors who check the value of their portfolio/holding with great frequency are more likely to be subject to myopic loss aversion. Frequent checks of holdings make people more sensitive to losses than to gain. If we check our portfolio very often we see many days when we have loss these automatically reduces our risk taking […]
Anchoring
Anchoring is a concept in behavioral finance where a person’s decision making ability is anchored in some past event. For example an investor today stays shy of investing because his mind is anchored in the 2008 stock market crash. He cannot think beyond. Thinking Man suggests that in investments our decisions should be always future […]
Market Sentiment
The overall attitude of investors toward a particular security or larger financial market. Market sentiment is also called “investor sentiment” and is not always based on fundamentals. In our daily, busy lives the newspaper updates us and keeps us informed with news from around the globe. But sometimes this news is so sensationalized that people […]
Framing Effect
Framing effect is a behavioral concept in which people react differently to two identical proposals depending on how they are presented. The framing effect is a bias, in which people’s decision for two identical options differs depending on whether it is presented as a loss or as a gain; People tend to avoid risk when a positive frame […]
Naive Diversification
“Naïve” means “inexperienced” in particular tasks assigned, even while taking important decisions of investments. There are instances in pasts wherein, investors use ‘naïve’ rules of thumb for portfolio construction due to lack of better information. One such rule is known as the ‘1/n’ approach, where investors allocate equally to the range of available asset classes […]
Framing Effect
Framing effect is a behavioral concept in which people react differently to two identical proposals depending on how they are presented. The framing effect is a bias, in which people’s decision for two identical options differs depending on whether it is presented as a loss or as a gain; People tend to avoid risk when a positive frame […]
Just Because Syndrome
Do you plan your weekend trip in advance or just pack your bag and go on an unplanned trip?? An unplanned trip sounds risky right!! Then why doesn’t unplanned finance sound risky? Why does planning your financial future always take a back seat?? Our personal finance decisions affect our life on a daily basis. Future financial […]
Recency Bias in investing
Recency Bias is pretty simple. Just think it this way “your short term memory dominates your long term memory” Usually it is the tendency that what happened in recent past will continue in the future. Consider an example of flipping a coin. We all know that the probability of any of the two possible outcomes in […]
Narrow Framing Bias
We don’t see things as they are; we see them as we are.” — Anaïs Nin Narrow Framing Bias: Narrow framing means taking a decision without considering all the factors that can affect a particular decision. Example: Mr. Harshil wants to buy a Phone the only factor that he thinks of is the brand though […]
Sunk cost fallacy
Sunk cost is a cost that has already been incurred in the past and can’t be recovered. For example: You booked tickets to watch a movie but you caught viral infection, still you went to the movie to justify the money you spent to purchase the tickets instead of taking rest. So, have you justified your […]