Mod 2: Behavioral Finance, Communication, and Counseling Principles Flashcards
(32 cards)
Behavioral Finance, Communication, and Counseling Principles
Cognitive Error.
You believe you can control the outcome of an event when you cannot.
Illusion of Control
Behavioral Finance, Communication, and Counseling Principles
Cognitive Error.
You have a tendency to think one dollar has the same value today, tomorrow, and into the future, without considering inflation.
Money Illusion
Behavioral Finance, Communication, and Counseling Principles
Cognitive Error.
You initially form a rational view but fail to change that view as new information becomes available.
Conservatism Bias
Cognitive Error.
You have a selective memory of the past and have a tendency to remember your correct views and forget your errors.
Hindsight Bias
Cognitive Error.
You look for ways to justify your current beliefs.
Confirmation Bias
Cognitive Error.
When considering your choices in a decision, you tend to recall a past experience similar to the present decision-making situation, and assume one is like the other.
Representativeness
Cognitive Error.
You tend to place money into separate mental “accounts” based on the purpose of these accounts.
Mental Accounting
Cognitive Error.
You have conflicting attitudes, beliefs, or behaviors that cause a feeling of mental discomfort. This leads to changing some of your attitudes, beliefs, or behaviors to reduce your discomfort and feel more balanced.
Cognitive Dissonance
Cognitive Error.
You take credit for your successes and either blame others or external influences for your failures.
Self-attribution Bias
Cognitive Error.
You make irrational decisions based on information that should have no influence on the decisions at hand.
Anchoring and Adjustment
Cognitive Error.
You tend to take a course of action based on the outcomes of prior events, ignoring current conditions.
Outcome Bias
Cognitive Error.
You process and respond to information based on the manner in which it is presented.
Framing Bias
Cognitive Error.
You give recent information more importance because you remember it most distinctly.
Recency Bias
Emotional Bias.
You fear losses much more than you value gains, and you prefer avoiding losses to acquiring the same amount in gains.
Loss Aversion
Emotional Bias.
You believe that you control random events merely by acquiring more knowledge and consider your abilities to be much better than they are.
Overconfidence
Emotional Bias.
You lack self-discipline and favor immediate gratification over long-term goals.
Self-control Bias
Emotional Bias.
You are comfortable with an existing situation, which leads to an unwillingness to make changes, even though the changes are beneficial.
Status Quo Bias
Emotional Bias.
You think an asset you own is worth more than it is because it is yours.
Endowment Bias
Emotional Bias.
You do nothing out of excess fear that your decisions or actions could be wrong.
Regret Aversion Bias
Emotional Bias.
You make decisions based on how you believe the outcomes will represent your interests and values.
Affinity Bias
The tradeoff that clients are willing to make between potential risks and rewards.
Risk Tolerance
The client’s assessment of the magnitude of the risks being traded off.
Risk Perception
The degree to which a clients’s financial resources can cushion risks.
Risk Capacity
Clients with visual learning styles tend to respond to…
Visual objects, such as:
- graphs
- charts
- pictures
- reading information
