Wednesday, December 30, 2009

Behavioral Bias

Here is a good post summarizing some of the many forms of behavioral bias. The biases covered include:
  • Overconfidence
  • Hindsight Bias
  • Loss aversion
  • Regret
  • Anchoring
Among others.

An excerpt:

"Unfortunately academic approaches which aim to replicate market behavior by tweaking efficient market models often don't translate well to the harsh, Darwinian world of real finance where people need to use these ideas to make money. Typically the models work right up to the point they don't, when they fail catastrophically."

This stuff is useful beyond improving investing results.

Adam

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