How can Emotions lead us to irrational investment decisions?
Emotion vs Reason
The tug of war between logic and emotion is as ancient as the human species itself. It is what separates us from other mammals. When we were still in caves, the emotional brain was responsible for quickly looking at the surroundings and identifying whether anything interesting (prey) is available. Once it has identified something interesting, it will decide to pursue the target and use the logical brain to rationalize the decision and go for the kill.
Similarly, in any product or website design, the emotional brain will help…
Understanding Self-Serving Bias & Why We Need To Take Responsibility
We are quick to ascribe our successes to our own resolute and calculated actions but ascribe our failures to factors out of our control. We are accountable for our results and own our mistakes.
Self-Attribution Bias is the common habit of people taking credit for positive events or outcomes and blaming outside factors for adverse events. Self-Serving Bias is a long-standing concept in psychological research and refers to individuals’ tendency to attribute successes to personal skills and failures to factors beyond their control.
The higher the returns in a previous…
Our inclination to be too hopeful leads us to overstate the expected success of our investments consistently, the chances of achieving our future dreams, or even our perceived ability to avoid a car accident while driving drunk when compared to our friends.
Our brain has a built-in optimism bias. People tend to overestimate the expectation of positive events and underestimate the anticipation of adverse events happening to them in the future; Experts believe that our brains may be wired by evolution to see the glass half-full. …