10 Questions
What is loss aversion in the context of investor decision-making biases?
Investors feel the pain of losses more acutely than the pleasure of equivalent gains, leading to risk-averse behavior.
How does confirmation bias affect investor decision-making?
Investors seek out information that confirms their existing beliefs or biases, disregarding contradictory evidence.
Explain the concept of overconfidence in the context of investments.
Many investors exhibit overconfidence in their abilities, leading them to take excessive risks or trade impulsively.
What is herding behavior in the context of investor decision-making?
Investors often follow the actions of the crowd, leading to momentum trading and market bubbles.
How does anchoring influence investor decisions?
Investors fixate on specific reference points, such as purchase price or recent market highs, influencing subsequent decisions.
What impact can behavioral biases have on investment returns?
Behavioral biases can have a significant detrimental impact on investment returns.
How does emotional decision-making affect investment outcomes?
Emotional decision-making often leads to suboptimal portfolio allocation, mistimed trades, and missed investment opportunities.
What costs are associated with emotional decision-making according to the Oxford Risk research?
Some estimates suggest losses of over 200 basis points annually.
How can cognitive biases impact risk tolerance in investments?
Cognitive biases can lead to misjudgment of risks, affecting risk tolerance in investments.
What is the connection between behavioral biases and missed investment opportunities?
Behavioral biases can lead to missed investment opportunities due to suboptimal decision-making.
Explore the impact of cognitive biases on individual and professional investors, leading to lower returns and suboptimal decision-making. Learn about the concept of cognitive biases introduced by psychologists Amos Tversky and Daniel Kahneman in 1972 and various types of biases affecting human cognition and behavior.
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