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Curious Investor Behaviour - Number 3 Confirmation Bias Once we have made a decision or formed a view, we subconsciously emphasise information which reinforces that view; at the same time, we tend to downplay contradictory information. The confirmation bias is perhaps the most subversive of all behavioural...

08 September, 2014

Curious Investor Behaviour - Number 4 Over-Confidence According to multiple studies into human behaviour, the majority of people consider themselves superior in most day-to-day activities - for example, over 90% of drivers believe they are better than average! Over-confidence is a particularly dangerous trait in the field of investment....

08 September, 2014

Curious Investor Behaviour - Number 5 Herding When investors are uncertain about the value of financial instruments, they typically default to a herding impulse; part of our evolutionary heritage that served us well in the past. Sadly, herds are ruled by the majority, so the prevailing mood predominates. It...

08 September, 2014

Curious Investor Behaviour - Number 6 Conservatism Bias People tend to cling tenaciously to an opinion. Even when circumstances have changed, most people find it difficult to adjust their view. A study by Dresdner Kleinwort Wasserstein in 2002 reveals that analysts' forecasts typically trail reality- in fact most...

08 September, 2014

Curious Investor Behaviour - Number 7 Hindsight Bias The mind seems to retain information in a series of compressed narratives, and to update "history" as new facts come to light. While efficient in managing memory, this innate habit of hindsight bias can prevent us adequately learning from experience,...

08 September, 2014

Curious Investor Behaviour - Number 6 Anchoring Faced with uncertainty, investors will grasp at any fixed point of reference when forming opinions. In a classic experiment, behavioural psychologists Kahneman and Tversky asked two groups to guess the proportion of African nations that make up the UN. The first group was asked whether the answer...

08 September, 2014