Behavioral Bias List

Anchoring Bias
Beginning an analysis with a default number in mind and adjusting up or down from that number. The “anchor” number often unduly influences the ultimate conclusion. (Bunn 1975)

Availability Bias
Giving a greater weight to easily recalled and recent information over information that is less recallable or harder to understand. (Taylor 1982)

Career Risk
Occurs when the remuneration and decision to replace or retain an investment manager depends directly on the manager’s performance, driving the manager to short-termism and irrational behavior. (Dasgupta 2006)

Cognitive Dissonance
Mental discomfort that results when confronted by new information that conflicts with existing beliefs or ideas. (Festinger 1962)

Confirmation Bias
Seeking out, overvaluing or misinterpreting information that confirms prior beliefs and ignoring contradictory information. (Nickerson 1998)

Conservatism Bias
Maintaining prior views or forecasts by inadequately incorporating new information. This causes individuals to overweigh initial beliefs and underreact to new information. (Ritter 2003)

Decision Fatigue
Deteriorating quality in decision made by an individual after making a series of decisions. Results in inadequate consideration of information and rushed judgement. (Tierney 2011)

Disposition Effect
Hastily selling assets whose price has increased while retaining for too long assets that have dropped in value. (Shefrin 1985)

Endowment Effect
Valuing an asset more (greater than its objective value) when it is held. (Kahneman 1991)

Emotional Quotient
The level of one’s ability to understand other people, what motivates them and how to work cooperatively with them. (Gardner 1983)

Framing Bias
Arriving at a different decision based on how the options are worded. (Tversky 1981)

Gambler’s Fallacy
Believing that the probability of an event is lowered when that event has recently occurred, even though the probability of the event is objectively known to be independent from one trial to the next. (Clotfelter 1993)

Herding Bias
Trading on the same side of the market in the same securities, ignoring conflicting information in favor of acting as other investors do, often for reassurance and comfort. (Grinblatt 1995)

Heuristics
Simple rules used in forming judgements to make decisions consisting of “mental shortcuts” that focus on certain aspects of a decision and ignoring others. (Nielsen 1994)

Hindsight Bias
Seeing past events as having been predictable and reasonable to expect before they occurred. (Fischoff 1975)

Home Bias
Maintaining a high proportion of investments in securities listed in one’s own country as opposed to internationally diversifying. (Coval 1999)

Illusion of Control Bias
Believing one can control and influence outcomes that one actually has no control over. (Langer 1975)

Loss Aversion
Permitting losses and disadvantages to shape preferences differently than gains or advantages. The utility derived from a gain is much lower than the utility given up by an equivalent loss. (Tversky 1991)

Mental Accounting Bias
Treating one sum of money differently than another equal-sized sum based on how the money is categorized. People mentally group their assets into non-interchangeable mental accounts, when in reality money is inherently interchangeable. (Thaler 1980)

Overconfident Bias
Demonstrating undeserved faith or confidence in one’s own judgements, to a higher degree than the judgements objective accuracy warrants. (Gerry 2002)

Phantastic Object
A mental representation in which an imagined scene fulfills a person’s desires to have exactly what she wants. The imagination drives investors to see what they want to see in an investment. (Tuckett 2008)

Regret Aversion
Avoiding an action for fear of making a poor choice. (Humphrey 2004)

Representativeness Bias
Classifying new information based on past experiences and classifications, especially using those classifications even if the new information does not necessarily fit. (Kahneman 1972)

Self-Control Bias
Failing to act in pursuit of long-term goals because of lack of self-discipline. Short-term satisfaction interferes with the achievement of long-term objectives. (Pompian 2006)

Self-Serving (Self-Attribution) Bias
People’s tendency to attribute positive events to their own character but attribute negative events to external factors. (Boyes 2013)

Short-Termism
Avoiding investments that are necessary for the future but require a sacrifice of short-term benefits. (Laverty 1996)

Status Quo Bias
Doing nothing or maintaining a previous decision when instead a change should be made. (Kahneman 1991)

Value Attribution
Imbuing someone or something with certain qualities based on perceived value, rather than objective data. (Brafman 2008)