Behavioural biases are one of the most common occurrences in investment decision making, yet are one of the last things on an investor's mind. If you have ever bought gold in a rush, or purchased a stock just because all your colleagues bought it, or sold prime land because your gut feeling said it was a bad investment, then you are a victim of behavioural biases.
Behavioural biases arise due to your emotions influencing your investment decisions. If not recognised and harnessed, they can present a real risk to your finances. Let us understand the different types of biases.
Confirmation bias
How often have you intuitively felt that a certain investment was good or bad? Chances are you don't like certain types of investment by nature, and prefer only certain other types of investment. What investors tend to do in such cases is to hunt for information that can justify their subjective feeling or decision. This unexplained inclination for certain types of investment and dislike for other types can result in what is called confirmation bias. As an investor, you can be thoroughly misled into making the wrong investment decisions and miss out on potential opportunities that you let go simply because your gut feel told you so.
Group think
This story is from the January 11, 2022 edition of Financial Express Mumbai.
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This story is from the January 11, 2022 edition of Financial Express Mumbai.
Start your 7-day Magzter GOLD free trial to access thousands of curated premium stories, and 8,500+ magazines and newspapers.
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