- Loss Aversion… A preference for avoiding losses over acquiring gains
- Sunk Cost Effect… Treating money already spent as more valuable than money that may be spent in the future
- Disposition Effect… A tendency to lock in gains and ride losses
- Outcome Bias… A tendency to judge a decision by its outcome rather than the quality of the decision at the time it was made
- Recency Bias… A tendency to weigh recent data or experience more than earlier data or experience
- Anchoring… A tendency to rely too heavily or anchor on readily available information
- Bandwagon effect… A tendency to believe things because other people believe them
- Belief in Law of Small numbers… The tendency to draw unjustified conclusions from too little information
Archives of “Consumer behaviour” tag
rssGet Rs 25000 right now or flip a coin with a 50/50 chance of winning Rs 50000. Which do you go for?
Think of an answer before reading further.
Now. You have the choice of definitely losing RS 25000 or flipping a coin with a 50/50 chance of losing Rs 50000. Which option do you take?
If you answered both questions the same way, congratulations, you have a rational attitude toward gains and losses. That’s good news if you’re a trader.
Studies show that most people will pick receiving Rs 25000 while opting to take the chance of losing Rs 50000 or nothing. It’s called loss aversion and it’s because negative reactions to loss impact our psyches twice as hard as the rush of making gains does.
Master that psychological part of trading and you’re one step closer to being the trader you want to be.