tips on how to fine-tune your existing investments
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…
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…
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…
When it comes to mathematical functions, the human brain can easily comprehend “Linear Function or Simple Interest”, but we are genetically unfit to comprehend “Exponential Function or Compound Interest” and its massive impact years down the road. When it comes to interest…
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…
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…
Have you also observed that many people behave as if not all dollars are created equal? By assigning relative values to different moneys that in reality have the same buying power, they run the risk of being too quick to spend,…
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…