Eight Cognitive Biases That Affect Trading

8

  1. Loss Aversion – The tendency for people to have a strong preference for avoiding loses over acquiring gains.
  2. Sunk Costs Effect – The tendency to treat money that already has been committed or spent as more valuable than money that may be spent in the future.
  3. Disposition Effect – The tendency for people to lock in gains and ride losses.
  4. Outcome Bias – The tendency to judge a decision by its outcome rather than by the quality of the decision at the time it was made.
  5. Recency Bias – The tendency to weigh recent data or experience more than earlier data or experience.
  6. Anchoring – The tendency to rely too heavily, or anchor, on readily available information.
  7. Bandwagon Effect – The tendency to believe things because many other people believe them.
  8. Belief In The Law Of small Numbers – The tendency to draw unjustified conclusions from too little information.
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