Biases (definitions on front side) Flashcards
(22 cards)
Make irrationally uneconomical consumer choices or investment decisions based on how you believe a certain product or service will reflect your values.
Affinity
Occurs when investors are influenced by purchase points or arbitrary price levels and cling to these numbers as they decide whether to buy or sell an investment.
Anchoring
A mental shortcut that causes people to estimate the probability of an outcome based on how prevalent or familiar that outcome appears in their lives.
Availability
The mental discomfort we feel when newly acquired information conflicts with preexisting understandings.
Cognitive dissonance
Cherry pick data to support a thesis, rather than objectively analyzing.
Confirmation
Emphasize original information more than new information, underreact to new information, and ignore information that is not consistent with our own view of the world.
Conservatism
Assign greater value to an object you possess and may lose than an object of the same value that you don?t possess and have the potential to gain.
Endowment
Tendency to respond to situations differently based on the context in which a choice is presented.
Framing
Buying when everyone else buys and/or when share price is rising, and vice versa.
Herding
Tendency to view events as having been more predictable, and thus actions more correct or incorrect, than was apparent as the situation was unfolding, which gives a false sense of security and can lead to excessive risk-taking.
Hindsight
Tendency to be more attracted to investments in domestic markets.
Home country
Tendency to believe we can control or influence outcomes that we cannot.
Illusion of control
Feeling greater pain for a loss than for a gain.
Loss aversion
When people treat various sums of money differently based on where these sums are mentally categorized.
Mental accounting
De-emphasize the events preceding the outcomes and over-emphasize the outcome, which results in the quality of the decision being judged solely on its eventual outcome.
Outcome
Unwarranted faith in your own thoughts and abilities. The belief that you can control random events by acquiring more information and consider your abilities to be better than they actually are.
Overconfidence
We recall recent information more easily than information obtained further in the past and potentially extrapolate recent patterns where none exist.
Recency
The tendency to do nothing due to the fear of making the wrong decision, and the tendency to allow regret for a previous decision to affect future ones.
Regret aversion
Arriving at a conclusion without doing a thorough analysis. Processing new information using pre-existing ideas or classic models.
Representativeness
Take credit for good outcomes and pass on the blame for bad outcomes.
Self-attribution
Tendency to consume today at the expense of saving for tomorrow.
Self-control
Tendency to stay with current investments, faced with an array of options, select the one that keeps conditions the same.
Status quo
