What is Herding Behavior in Stock Market? Herding behaviour in the stock market is when investors make decisions based on other investors’ investments. Other names for this behavior include herd mentality and herd instinct. Herding behavior explains investors’ tendency to imitate or follow what other investors are doing. Usually, they …

What is the Gambler’s Fallacy? The term gambler’s fallacy refers to the belief that individuals have that the probability of a random event occurring in the future depends on the previous instance of that type of event. Another name used for the gambler’s fallacy is the Monte Carlo fallacy. It …

What is Behavioral Finance? Behavioural finance is a field in behavioural economics that deals with psychological influences and biases. It also examines how these biases impact financial behaviours that investors demonstrate. Furthermore, it studies how these behaviours affect the financial markets, such as the stock market. Behavioural finance also explains …

What is Recency Bias? Recency bias represents the tendency of individuals to remember information that they have analyzed. While considering recent information can provide short-term results, it may neglect long-term effects. However, some people tend to allocate too much reliance to recent occurrences, which may cost them in the long …

Many individuals dread change. Therefore, they will go through any process to prevent change from occurring. The reason why an individual may do so depends on several factors. Instead of welcoming change, these people will try to ensure things remain the same way. When these changes do occur, they view …

What is Overconfidence Bias? Overconfidence bias occurs when individuals are overconfident of their talent, skills, or abilities. Usually, these individuals overestimate their beliefs and judgments than what is objectively reasonable. Their perception comes from a subjective viewpoint. The problem occurs when they let this confidence influence their decisions and other …

When investing, each investor will establish a risk appetite that defines the risk they are willing to take. Several factors contribute to how much uncertainty investors will accept. Based on that, some investors will face risks and get rewards for them. For some others, the uncertainty involving losses may be …

What is Mental Accounting Bias? Mental accounting is a process that individuals use to assign subjective values to their money. However, these values go against the accepted economic principles. Mental accounting is a concept that comes from behavioural economics. Often, people tend to place varying values on the same amount …

In finance and investing, making accurate predictions based on certain factors is critical. If an investor makes the correct prediction, they can expect high returns. However, wrong forecasts can also be vital, as they can cause losses. There are several factors that may influence whether someone makes the correct predictions. …

What is the Illusion of Control Bias? The illusion of control bias is a type of bias in behavioural finance that gives people the illusion of control. People that inherit this behaviour tend to overestimate the power or control they have over a circumstance. Therefore, they tend to think they …