Explore tens of thousands of sets crafted by our community.
Behavioral Finance Principles
15
Flashcards
0/15
Overconfidence Bias
Overconfidence bias is a well-established bias where a person's subjective confidence in their judgments is reliably greater than their objective accuracy, especially when confidence is relatively high.
Anchoring
Anchoring refers to the cognitive bias that describes the common human tendency to rely too heavily on the first piece of information offered when making decisions.
Framing Effect
The framing effect is a cognitive bias where people decide on options based on if the options are presented with positive or negative connotations; e.g. as a loss or as a gain.
Confirmation Bias
Confirmation bias is the tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses.
Availability Heuristic
The availability heuristic is a mental shortcut that relies on immediate examples that come to a person's mind when evaluating a specific topic, concept, method or decision.
Herd Behavior
Herd behavior describes how individuals in a group can act collectively without centralized direction. In finance, it relates to individuals copying the actions of a larger group, sometimes leading to market bubbles or crashes.
Endowment Effect
Endowment effect occurs when individuals value an owned item more highly simply because they own it, which is associated with a reluctance to sell or trade it.
Mental Accounting
Mental accounting refers to the different values people place on money, based on subjective criteria, often leading to irrational decision-making.
Loss Aversion
Loss aversion is a concept in behavioral finance that describes why the pain of losing is psychologically about twice as powerful as the pleasure of gaining.
Base Rate Fallacy
The base rate fallacy is the tendency to ignore base rate information (generic, broad information) and focus on specific information (information only pertaining to a certain case).
Gambler's Fallacy
The gambler's fallacy is the mistaken belief that if something happens more frequently than normal during a given period, it will happen less frequently in the future, or vice versa.
Disposition Effect
The disposition effect is the tendency for investors to sell assets that have increased in value, while keeping assets that have dropped in value.
Regret Aversion
Regret aversion is a fear of regretting poor choices, which leads to avoiding making decisions, such as the sale of an investment.
Prospect Theory
Developed by Daniel Kahneman and Amos Tversky, the theory describes how people choose between probabilistic alternatives that involve risk, where the probabilities of outcomes are known.
Hindsight Bias
Hindsight bias is the tendency to believe, after an event has occurred, that one would have predicted or expected the outcome, which is also known as the 'knew-it-all-along effect'.
© Hypatia.Tech. 2024 All rights reserved.