Behavioral Finance


Below is a Brief Summary of Behavioral Finance
Economists view the goal of investing as maximizing economic wealth. Yet behavioral finance shows investors are maximizing their feelings and achieving sub-optimal economic gains.

Heuristic biases are mental shortcuts that cause us to make systematic mistakes. Even after we make these mistakes, we are usually not aware of them and continue to systematically make them.

Examples of these biases include:

Overconfidence and Optimism
In ourselves or expert advisors.
Data Mining
Finding patterns out of randomness to predict the future.
Mentally locking in a price even though it is now irrelevant.
Hindsight Bias
Predicting the past as if one knew what would happen.
Fear and Greed
Running from a down market and toward a bull market.
Mental Accounting
Believing we are doing better than we are.
Status Quo
Aversion to change.