Investor Biases and Behavioral Mistakes

When decision-making occurs under conditions of uncertainty, financial plans can be flawed due to commonly used shortcuts, intuitive biases, or prejudices, often driven by limited information and urgency. Prejudices can be defined as suggested simple rules to explain how people make decisions, form judgments, and solve problems when faced with complex decisions or incomplete information. While these rules often work, they can lead to systematic errors.

The following can be said about the impact of biases on financial planning and asset management: People tend to procrastinate or prefer maintaining the status quo when making decisions. They tend to overestimate positive outcome expectations while underestimating negative outcome expectations. People make more errors than they believe, leading them to perceive themselves as above average. They tend to give more importance to information supporting their beliefs while disregarding information contradicting them. People tend to overestimate the control they have over the outcome. When they learn the outcome, they claim it was easily predictable. When people start making incorrect, biased, and unsustainable decisions, they tend to stick to their past analyses, experiences, and beliefs.

In this training, based on behavioral finance, after recognizing cognitive and emotional biases and examining their negative effects, we will discuss what we can do to overcome these biases. If we can turn these biases in our favor, we will see how our investments can also be affected together.