Behavioral finance FAQ / Glossary (D)

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Da - Dec


Dates of related message(s) in the
Behavioral-Finance group (*):

Year/month, d: developed / discussed,
i: incidental

Debiasing



Due to its length, this article
   
is in a separate page

of this "D" glossary section

De-learning

See habit, learning

Debt averse / aversion

05/1i + see overleverage,
liquidity squeeze

Debt aversion is the reluctance

           * not only to borrow for one's current spending, which can be seen as
              a rational precaution,

            * but even to commit more than one's own financial resources, to fund an
               investment,
by adding debt, whatever the expected rewards of such 
               a move.

The opposite bias of that aversion is a taste for "overleverage"
(see that word).

Deception (in financial markets)



Due to its length, this article
   
is in a separate page

of this "D" glossary section

Decision, decision-making


 

Due to its length, this article
   
is in a separate page

of this "D" glossary section

Def - Den


Dates of related message(s) in the
Behavioral-Finance group (*):

Year/month, d: developed / discussed,
i: incidental

Default solution preference

See decision, underconfidence,
delaying

Deification / demonization

02/8i + see attribution

Venerate as an idol?
Or behead as a culprit?

Deification and demonization are extreme forms of attribution
biases.

They take place when a person (personalization), a group, an institution
(or even
an object or phenomenon, whether natural or man-made) is
nearly unanimously
considered, on flimsy bases (*) as the main
responsible for
:

Either a good event or situation (here we have
   deification,
the person / group is seen as
    god-like).

"Join the fan club!".

Or a bad one: demonization, the person is

embodied as an evil agent.

"Name a scapegoat!"

(*) Superficial impressions, reductive analyses / heuristics / anchorings,
      or even
deliberate framing / manipulation (see those words in this glossary).

For example, in financial / economic matters:

The governor of a central bank is often held responsible for an economic

boom or slump, whatever its real causes.

Also, some companies or stocks might be deified or demonized

because of their past records, or for more frivolous reasons.

When situations revert, deified persons (or stocks) might become
demonized.

More seldom, it can go the other way round, from demonization to
deification.

Delaying tactics



Due to its length, this article
   
is in a separate page

of this "D" glossary section

(Self-) Delusion

See overconfidence, illusion,
greater fool delusion

Denial (of realities)


02/7i,12i, -05/1i - 06/4d +
see cognitive dissonance,

rationalization, framing, belief
+ bfdef2

Reality can be painful,
so why
not to hide it by burying our head in the sand of
our beliefs?

Definition

Denial is the attitude of a person who is blind to, or does
not
admit, real events and situations when they are contrary to:

His own beliefs (that have become its pet dogmas),

Sometimes it can lead to interpret events or to "frame" (see that word)
them in a way that fits those preconceived ideas (see rationalization)

Or his conscious - or subconscious - preferences or aversions

Denial is then a kind of mental protection against the pain to see
one's beliefs negated by new realities. It is

  * either deep seated and irreversible,
  * or just a necessary transition phase before accepting and adapting to the
   new situation.

Well, even a temporary denial might make us miss the train when a fast reaction
is needed.

Denial in investing

Biased investment decisions that ignore realities?

That must be the case for other investors, not for me!

In stock markets, denial is a key cause of price

underreaction to new information

A denial of denial?

Among investors, or economic deciders, denial can even
affect
those who are aware that decision biases - such as ...
denial - exist
.

This includes people who are knowledgeable in behavioral finance /
economics or in social psychology.

Even them, I could say us, might deny to be subjected to some of those
biases.

That common self-centered illusion might explain why biased decisions

are recurrent (for some of them we might say "cyclical", see cycle)
in finance as well as in economics, in business management, in politics
and generally in most fields of personal and social activities.

Dif - Dis


Dates of related message(s) in the
Behavioral-Finance group (*):

Year/month, d: developed / discussed,
i: incidental

Diffusion / Dissemination (of information)


Due to its length, this article
   
is in a separate page

of this "D" glossary section

Disappointment aversion

07/3i + See aversion, regret,
expectation, surprise

Not a bed of roses, although not my fault!

The disappointment aversion is rather similar to the regret aversion (see
that phrase), except that there is no self-attribution of the "error".

One example is when a stock owner loses money when stock prices
fall  across the board while most other investors (and most analysts /
commentators / advisers ) did not warn or were not warned about it.

Thus the investor does not feel responsible to have picked the wrong stock,
does not regret his decision, but feel disappointed by the market itself.

Disappointment is asymmetric


People are usually:

More disappointed by less favorable than
   expected outcomes
,

     Than happy by outcomes that are above their
       expectations


This fits the "prospect theory" (see that phrase) which found that people
suffer more from loss than from a lack of expected gain.

See the general "aversion" article to see the relations
between
risk / loss / regret aversion, prospect theory,
disposition effect...

A paradox, as a reverse asymmetry is that people remember better
successes than failure, which does not really help to correct behaviors.

(investment) Discipline

See self control bias

Disequilibrium

See dynamical system,
equilibrium

Disinformation

 



00/12i  + see manipulation,
deception, pump and dump,

ethics, asymmetry of info,
media / information distortion,
misrepresentation

Do I get the right picture?

Disinformation is one of the tools of manipulation and
                    
deception (see those words).

To disinform (or misinform) is to, voluntarily,

Either disseminate false or at least misleading information,

Or hide true information.

In business / finance / politics, but also in everyday life, this deliberate
action is usually done, you guessed it, in the manipulator's interest or
at least in line with its agenda.

Less often, it is done for fanciful (trolling) or perverse (vandalism)
purposes.

Disposition effect




02/1i - 02/7i,10i - 03/4i,5d -
05/5i,6i - 06/11i - 07/3i - 09/2i 

+ see commitment, regret, loss
aversion, prospect theory,
endowment, get-eventis,
divesture aversion

I lose, therefore I keep.
Strange, isn't it?

Definition:

The disposition effect is the fact that often, in their asset portfolio,
people prefer to sell (dispose of) winners than losers.

Various motives can make them act in such an asymmetric way
as regards selling
:

Either pride / ego (mental denial that the investment was a mistake
    so
as to reduce the related pain)

Or commitment or endowment effect (see below),

Or loss aversion / get-eventis (hope to recoup their loss, even at
    the
risk of making it bigger),

Or the attempt to avoid regrets (see regret aversion) after selling a

half-dead asset that still has a chance, however small, to resuscitate.

They might be less prone to that bias if the money they manage is not their
own (see
house money effect) or if they are experienced traders (meaning ...
traders who survived).

Possible confusions

Beware of the shades.

1) Semantics are not too clear:

The disposition effect is sometimes confused with some related   
effects, such as the commitment effect and the endowment
effect 
/ divestiture aversion (see those phrases).

But there are some differences.

For example, people are committed to what they
own,whether they are gaining or not money on them.

They are not too keen on abandoning them. They would feel
deprived of their riches.


2) See also the general "aversion" article. It shows the relations 

between: risk aversion, prospect theory, loss aversion, 
regret aversion, disposition effect...

Dissemination / diffusion (of information)

00/12i - 03/9i + see transmission

(trend) disruption

See non linear, bifurcation,
percolation, dynamical systems

(price, return, market) distortion

See anomaly, mispricing,
inefficiency

(statistical) distribution anomaly

Due to their lengths, those articles
   
are in a separate page

of this "D" glossary section


Div


Dates of related message(s) in the
Behavioral-Finance group (*):
Year/month, d: developed / discussed,
i: incidental

Divesture aversion

See endowment effect

Dividend puzzle



Due to their lengths, those articles
   
are in a separate page

of this "D" glossary section

Do - Dy

Dates of related message(s) in the
Behavioral-Finance group (*):

Year/month, d: developed / discussed,
i: incidental

Dominant mental interest



See cognitive overload, fashion,
anchoring, dissemination of

information, selective exposure,
rotation, attention

Flavor of the month.

Collective dominant interest in markets

A market has difficulty to take into account all the economic world
complexity .

Thus, it shifts its interest from one factor to the other, that
becomes the new fashion.

This change of focus in the public attention leads to what is the
dominant / collective anchoring / dominant mental interest of the
moment.

For example, for stock investors, often influenced by
commentators, what is considered the key factor to watch
and that attracts the most their attention, can be
alternatively:

The interest rates,

Or the trade deficit,

Or the employment rate,

Or the inflation rate

Or the budget and taxes,

Or whatever other fashion of the day,

linked either to domestic issues or to global ones.

This focusing can be a spontaneous and contagious social phenomenon.

But it might also be used as a manipulation technique

by informers who try to shift the public attention by using "red herrings".

Individual mental interest

Personal obsession of the day

Of course, the dominant mental interest is not just a matter of social
fashion.

An individual might also get focused / anchored on some exclusive /
obsessive
thinking (or fantasy), attitude, behavior,  either transient
or permanent
.

Domino effect

See epidemic, contagion

Dot-com / dotcom bubble / craze

See bubble, story

Doubt

See belief, uncertainty

Not too certain of ...certainty

Definition:

Doubt is the opposite of certainty or full belief.

Or at least, it is a limited certainty or bounded degree of belief.

To be consistent, let us recall that what people feel as certain
comes from:

* either an objective evidence

* or ...a subjective belief (see belief).

This is not fully consistent in fact, as doubt could also express in
some cases a distrust
even when evidences are strong.

Sorry to introduce some doubts in the definition of doubt :-)

Doubt and uncertainty

When facing economic / financial decision, some uncertainty (see
that word) is often present.

By nature, the world is an uncertain place, the future is largely unknown and
probabilities can be illusory.

Statistics are only partly reliable as indicators of future probabilities.

In such cases, the decider has to find some position between
belief and doubt
, to decide where to place the degree
of "belief vs. doubt"
cursor. Somewhere between a 1% certainty
and a 99% certainty.

Some decision-making tools might help in those cases, such as Bayesian
probabilities, fuzzy logic..
.

Drive

See attitude, motivation, need

Dynamical systems

Due to its length, this article
   
is in a separate page

of this "D" glossary section

(*) To find those messages: reach that BF group and, once there,
      1) click "messages", 2) enter your query in "search archives".

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This page last update: 24/09/15
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