In this mini-series, we are going to talk about five cognitive biases and how they affect us in our financial decisions. Anchoring Bias refers to when a person latches onto the first piece of information they see or hear and end up being an "anchor" for new information that follows. Nathaniel mentioned how that effects him then it comes to investing in the stock market. To combat this bias: analyze historical data, but don't hold onto those historical conclusions. As one of our favorite quotes goes: "history doesn't repeat itself but it often rhymes." A cousin of the Anchoring Bias is Recency (Availability) Bias. This is a tendency to overvalue the latest information available. Dan pointed out how people are overly optimistic, and assume the market will always go up when times are good, and then go to the opposite extreme when times are bad. The key to avoid both biases is to gather information from different sides so that you can have a more comprehensive understanding. Tim explained how we can actually utilize these biases to our benefit when negotiating salary, buying a house, etc. We ended the podcast by recommending some of our favorite authors' books on these cognitive biases.
