Here, we focus on five prominent behavioral biases commonly observed in investors. In particular, we look at loss aversion, anchoring bias, herd instinct, overconfidence bias, and confirmation bias.
Loss aversion
Loss aversion occurs when investors care more about losses than gains.
Therefore, some investors may wish to receive higher compensation to offset their losses. If high returns are unlikely, even if the risk of the investment is acceptable from a rational investor's perspective, they may try to completely avoid losses.
In investing, when investors sell winners and hold onto losers, loss aversion can lead to the so-called disposition effect. Investors do this because they want to realize profits quickly. However, when an investment is losing, many of them choose to hold on because they want to recover to the initial price.
.Anchoring bias
This means that some investors tend to rely too heavily on arbitrary benchmarks, such as the purchase price or listing price. Market participants with anchoring bias often hold
Investments that have depreciated because they fix the fair value estimate at the original purchase price rather than on fundamentals.
.Herd instinct
The term herd instinct refers to the phenomenon where people join groups and pay attention to the behavior of others because they believe others have done the research. Herd instinct is common in various aspects of society, including the financial industry, where investors focus on the actions of other investors they see, rather than relying on their own analysis. Market crashes caused by asset bubbles or panic buying and selling are considered to exhibit herd instinct on a large scale.
·Overconfidence bias
Overconfidence bias means being overly confident in one's abilities, leading us to take on excessive risks.
This bias is common in behavioral finance and can have a significant impact on capital markets. Overconfidence has two components: confidence in the quality of information, and confidence in one's ability to act at the right time based on that information to maximize returns.
Confirmation bias
Confirmation bias is a term in cognitive psychology that describes how people naturally prefer information that confirms their existing beliefs. Behavioral finance experts have found that this fundamental principle is particularly applicable to market participants. Investors seek information that confirms their existing views while ignoring contradictory facts or data. As a result, their own cognitive biases may diminish the value of their decision-making. In the upcoming layout direction, I will guide everyone to aim for lucrative opportunities in the market, especially those projects with great potential, expecting a space of more than ten times is not a problem. If you want to make big money in a bull market, like and comment, and I will help you layout the entire bull market!
