The Behavioral Biases of IndividualsLocked: included in All Access

Why real investors depart from the rational decision maker of traditional finance: the split between cognitive errors (faulty reasoning, which can be corrected) and emotional biases (feelings, which usually have to be accommodated), the fifteen named biases with their consequences and remedies, and how the same biases, added up across many investors, help explain market anomalies such as momentum, bubbles and crashes, and the value effect.

1. 1. Cognitive errors versus emotional biasesBehavioural biases come in two families: cognitive errors grow out of faulty reasoning and can usually be fixed with better information, while emotional biases grow out of feelings and usually have to be recognised and worked around.Video · 7 minLocked: included in All Access13 min
2. 2. Belief perseverance I: conservatism and confirmationConservatism makes people update too slowly when new information arrives, and confirmation makes them go looking for information that supports what they already believe; both protect an existing view at the expense of an accurate one.Locked: included in All Access12 min
3. 3. Belief perseverance II: representativeness, illusion of control and hindsightRepresentativeness classifies new things by how familiar they look, illusion of control overstates how much we can steer outcomes, and hindsight rewrites the past as predictable; each keeps a comfortable belief alive and each has a practical antidote.Locked: included in All Access14 min
4. 4. Information-processing biases: anchoring, mental accounting, framing and availabilityInformation-processing biases are about how data are handled rather than which beliefs are defended: people anchor on a starting number, split money into mental buckets, react to how a choice is worded, and judge by whatever comes to mind most easily.Video · 7 minLocked: included in All Access15 min
5. 5. Emotional biases I: loss aversion and overconfidenceLoss aversion makes losses hurt far more than equal gains please, so investors hold losers and sell winners; overconfidence makes them trust their own judgement too much, so they underestimate risk, overestimate returns and diversify too little.Video · 7 minLocked: included in All Access13 min
6. 6. Emotional biases II: self-control, status quo, endowment and regret aversionSelf-control bias trades long-term goals for short-term pleasure, while status quo, endowment and regret aversion all lead investors to keep what they have, but for different reasons: inertia, extra value placed on what is owned, or fear of regretting an action.Locked: included in All Access14 min
7. 7. Behavioural finance and market anomaliesWhen many investors share the same biases, prices can show persistent patterns that efficient-market theory struggles to explain, but before calling a pattern an anomaly, check that it is not a model, statistics or timing artefact.Locked: included in All Access14 min