Recency Bias

We tend to associate more importance to recent events than we do to less recent ones. The more vivid our memory of something which occurred in the past is, the more “available” that event will be in our mind and the more…

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Indecision Bias

A not all too famous person once said, “I used to be indecisive.  Now I am not sure.” — me in the not too distant past. Choice is hard.  When faced with more than 2 additional options to choose from, we often get discombobulated…

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Scarcity Bias

No, I am not referring to that 1998 action movie with Tia Carrere.  More to situations where you spend a month researching the best flat screen TV, then invested twice as much money in a penny stock based solely on a hot…

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Anchoring Bias

This is clinging to a fact or figure that should have no bearing on your decision.  Often, we use an initial value or first piece of informationa as a “starting point” in decision making.  Even if the initial value was…

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Decision Heuristics

Or why we adhere so strongly to our beliefs.   One culprit is what the rule of consistency describes: a powerful force that compels us to act in a way that is consistent with our past behavior (this rule is extensively…

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Optimism

People tend to be optimistic about the future and that is not a bad thing in general.  However, this optimism might easily develop into “wishful thinking”. Too much “wishful thinking” will be harmful to your money.  You might be awful at managing your money when…

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Credulity Bias

“The Moon is made of green cheese.” While we might like to believe that we are all perfectly rational, reality is far different.  Unfortunately, we tend to be susceptible to the manipulative messages that the financial industry and the popular…

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Hindsight Bias

Also known as the “I knew it all along” effect.  Hindsight bias refers to our tendency to take facts now known and  interpret them in a way that explains past events.  In retrospect everything seems clear and inevitable. This is a…

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