Behavioral Finance Flashcards
Affect Heurisitc
Deals with judging something, whether it is good or bad. Do they like or dislike some company based on non-financial issues.
Anchoring (Conservatism or belief perseverance)
Attaching one’s thoughts to a reference point even though there may be no logical relevance or is not pertinent to the issue in question.
Availability Heuritisc
when a decision maker relies upon knowledge that is readily available in his or her memory
Confirmation Bias
People tend to filter information and focus on information to consider significant amounts of information
Cognitive Dissonance
Tendency to misinterpret information that is contrary to an existing opinion or only pay attention to information that supports an existing opinion
Disposition Effect or Regret Avoidance or Faulty Framing
where normal investors do not mark their stocks to market prices. Investors create mental accounts when they purchase stocks and continue to market their value to purchase values
Gambler’s Fallacy
Investors often have incorrect understanding of probabilities which can lead to faulty predictions.
Familiarity Bias
Investors tend to overestimate/underestimate the rick of investments in which they are familiar/unfamiliar with
Herding
Following the masses
Hindsight Bias
Looking back and assuming you can predict the future as readily as you can explain the past
Illusion of Control Bias
Tendency for people to overestimate their ability to control events
Overconfidence bias
rely on own skills, research, and capabilites to make decisions
Prospect Therapy
Provides that people provide value gains and losses differently and will base decisions on perceived gains instead of losses
Recency
Giving to much weight to recent observations
Similarity Heuristic
Used when a decision or judgment is made when apparently similar situation occurs even though the situations may be very different
