Overconfidence

A close relative to the previously mentioned Confirmation Bias, Overconfidence is the tendency to overestimate our own abilities (i.e., we aren’t as smart as we think we are).  We tend to think that we are much better forecasters and estimators than we…

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Confirmation Bias

We let confirmation bias take control of our mind by only seeking out information from sources that agree with our pre-existing beliefs.  Conversely, we tend to ignore and dismiss information (= disconfirming evidence) which tend to disprove our initial impressions. It’s the tendency to interpret the glass…

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Endowment Effect

Endowment Effect is the tendency to fall in love with what we own and makes us resist change.  Or in other words, this is the tendency to consider something you own to be worth more than it would be, if you didn’t…

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Self-Serving Bias

Most of us have a good reputation with ourselves. You associate all of your financial successes with skill, but all your financial failures with bad luck or the “unfair” market.  Rather than admitting and learning from your mistakes, you ignore them, bury…

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Regret Aversion

This is the tendency to avoid taking an action due to the fear that—in hindsight—it will turn out to have been less than optimal.  Like leaving money in a bank account, rather than putting the cash in an investment with…

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Hedonic Treadmill

What kind of treadmill is that?  You say, “I know only the treadmills from Horizon, Epic, and  Lifespan.” Like so many of us, I am quite sure that you have spent some time on the Hedonic Treadmill. The Hedonic Treadmill is one that some people are constantly running…

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Loss Aversion

Social scientists have proven that—emotionally—a loss “weighs” at least twice that of a similar gain.  That might be great for aspiring body-builders, but not so great for us regular Joes. It’s the actual gaining or losing and your feelings about it that…

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STATUS QUO BIAS

Irrationally wanting things to stay the same, also called inertia.  We do this in part because we want to avoid costs, even when they’re offset by a larger gain, a process psychologists call “Loss aversion”. You hold onto a mutual fund…

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