This episode is the continuation of the previous 2 episodes in which we discussed why investors are so irrational, what are the most common behavioral biases that affect our decision making and what can we do about it?
Simply being aware of this will make you become a better investor because now you can prevent yourself from getting affected by all these behavioral biases when you're making any investment decisions.
So far, we have discussed the 6 common behavioral biases. What are they?
1. Overconfidence Bias - Tendency to hold misleading beliefs of our own skills, intellect, or talent. And it makes us believe that we are better than the person we actually are.
2. Anchoring Bias - When we rely too much on pre-existing information or the first piece of information we come across and using that information to making our decisions.
3. Herd Mentality Bias - When investors follow or copy what other investors are doing instead of making independent analysis.
4. Self Serving/Attribution Bias - Tendency to believe that good outcome happens because of our skills and bad outcome happens because of our luck.
5. Hindsight Bias - When people believe that they know everything about it, or it was obvious or they think they were right, only after something or a particular incident has happened.
6. Loss Aversion - When investors become so fearful of losses that they focus on trying to avoid a loss more than making gains.
These are the 6 biases that we have discussed. So be sure to check out the previous 2 episodes (Part 1 & Part 2) to better understand these biases.
So then, what are the remaining biases? That's what we will be exploring in this episode.
Check out this episode to find out more!
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Source:
1. Behavioral Finance - Corporate Finance Institute
https://corporatefinanceinstitute.com/resources/knowledge/trading-investing/behavioral-finance/
