23 Sneaky Biases That Are Ruining Your Investing Plan
Humans are inherently susceptible to irrational preferences called biases. Since investors are human, there are a number of investing biases to be aware of and try to avoid.
// TIMESTAMPS:
00:00 - Intro - What Are Investing Biases?
01:26 - 1. Herding
03:15 - 2. Confirmation Bias
04:53 - 3. Overconfidence Effect
07:35 - 4. Loss Aversion
10:43 - 5. Endowment Effect
11:43 - 6. Status Quo Bias
13:37 - 7. Familiarity Bias and Home Country Bias
14:34 - 8. Survivorship Bias
17:04 - 9. Recency Bias
19:36 - 10. Tracking Error Regret
22:14 - 11. Anchoring Bias
24:00 - 12. Mental Accounting Bias
26:31 - 13. Hindsight Bias
28:32 - 14. Narrative Bias
29:15 - 15. Irrational Escalation of Commitment and Sunk Cost Fallacy
30:57 - 16. Optimism Bias
32:24 - 17. Outcome Bias
34:58 - 18. Law of Small Numbers
36:51 - 19. Self-Attribution Bias
38:18 - 20. Availability Bias
41:04 - 21. Authority Bias
42:09 - 22. Restraint Bias
42:53 - 23. Information Bias
43:50 - How To Overcome These Biases
44:14 - Outro
// SUMMARY:
Classical economics assumes humans make perfectly rational choices. Psychologists in the 1960's started a field of study now known as behavioral economics after observing that people are very susceptible to irrational decision making based on emotions.
Investing biases are these irrational preferences that affect investing decisions and subsequent outcomes. Not all investing biases are necessarily negative, but those are usually the ones we want to focus on. Biases distort our ability to make rational financial decisions based on objective facts and evidence.
Psychologists have identified many different types of biases. These can be cognitive (making decisions based on rules of thumb) or emotional (usually reactionary based on one's feelings and personal experience). The former are universal and are easier to identify and correct via adapting behavior and modifying processes. The latter can be highly personal and are more challenging to address, as emotional biases are typically deeply rooted in one's feelings and beliefs.
Here we'll briefly look at the biases that impact investors most, with examples and strategies to overcome them.
1. Herding
2. Confirmation Bias
3. Overconfidence Effect
4. Loss Aversion
5. Endowment Effect
6. Status Quo Bias
7. Familiarity Bias and Home Country Bias
8. Survivorship Bias
9. Recency Bias
10. Tracking Error Regret
11. Anchoring Bias
12. Mental Accounting Bias
13. Hindsight Bias
14. Narrative Bias
15. Irrational Escalation of Commitment and Sunk Cost Fallacy
16. Optimism Bias
17. Outcome Bias
18. Law of Small Numbers
19. Self-Attribution Bias
20. Availability Bias
21. Authority Bias
22. Restraint Bias
23. Information Bias
Read the blog post here: https://www.optimizedportfolio.com/in...
#investingmistakes #biases #cognitivebiases
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