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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

Curious Investor Behaviour - Number 9 Cognitive Dissonance When there is a conflict between our beliefs and reality, we tend to rationalise irrational behaviour. Cognitive dissonance was first observed by Leon Festinger, a psychologist who studied a cult which believed that the earth was going to be destroyed...

08 September, 2014

Curious Investor Behaviour - Number 10 Loss Aversion According to empirical evidence, the pain of losing $100 is felt more than twice as much as the pleasure of gaining the same amount (Kahneman and Tversky, 1992). Sadly, this irrational approach is evident in the stockmarket. Many investors keep...

08 September, 2014