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Extrapolation Bias

31 Jan 2020
Extrapolation Bias

In its simplest form, extrapolation bias is the tendency of an investor to overestimate recent events when making decisions about the future. In short, to forecast overly optimistically in rising markets, the reverse when they have fallen. This bias, as with so many related to personal investing, does not serve investors well.

The Gambler’s Fallacy

30 Jan 2020
The Gambler’s Fallacy

Human behaviour seeks to identify patterns in outcomes and react according to intuition, even if it is faulty. One of the best examples of this lies in how people choose to wager on an outcome based on observation. Astute mathematicians have dismissed such behaviour as being fallacious and investors should take note.

The Choice Paradox

29 Jan 2020
The Choice Paradox

We live in an era of wide choice: from selecting delicacies to selecting securities for investment. It is an assumption of our age that abundant choice is one benefit of an enlightened age. Proof exists that choice overload can lead to selection paralysis and the search for a solution.

The Dangers of the Anchoring Effect

9 Jul 2019

‘Anchoring’ can be most detrimental to the best interests of investors; it is, in fact, something we all have a tendency to do, and which we should almost always try to avoid. It is the tendency to evaluate buying and selling decisions around a specific number which emotionally latches itself into our minds based on dangerous misconceptions.

The Disposition Effect

19 Nov 2018

The ‘disposition effect’ has been described as ‘One of the most robust facts about the trading of individual investors’ (Barberis & Xiong).  Professor Hersh Shefrin (Santa Clara University, USA) describes the effect as ‘a predisposition toward get-evenitis’.