Behavioral Finance - Beyond Greed and Fear

The primary emotions that determine risk-taking behavior are not greed and fear, but hope and fear. Although to err is human, financial practitioners of all types make the same mistakes repeatedly.

Gambler's fallacy: a too low prediction. People misinterpret the law of averages. For example when they flip a fair coin and five times it turns out to be head, people expect the sixth time to be tail. But the probability is still ½ to get tail or head.
When people are overconfident, they set overly narrow confidence bands. They set their high guess too low and their low guess too high. Hence they get more frequently surprised than they anticipated.

Тэги:

#Behavioral_finance #Fear_(Quotation_Subject) #Market #Greed_(Quotation_Subject) #Trading #Stock #Business #Economy #Economics_(Field_Of_Study) #Analysis #Investment

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