Behavioral finance FAQ / Glossary (Selective)

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Dates of related message(s) in the
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i: incidental

Selective attention/ exposure/ memory/ perception / reporting

Selection bias / Selectivity bias

Not specified, as related
to many phenomena

 

To pick fruits, information and ideas according to taste
can make neglect better ones.

Why not looking for other flavors and mind vitamins?

Definition and effects

Blinders


The selectivity bias is a rather common habit of human beings to

  select too narrowly the information they use for their
decisions.

They shun to dig for under-the-surface facts, as well as to look at the broader
picture.

The reasons can be diverses, from neglect and laziness to the feeling that to
know the full truth might hurt our beliefs. 

Those blinders tend to lead to wrong decisions and
behaviors
, in economics and finance as well as
in many other areas of knowledge and activities.

Forms

This myopic approach is found under various labels. Thus better show here
the whole range (some with their own glossary articles), so as not
to be too ...selective:

Selective
    attention

 

 

Being overly impressed by facts that are salient,
spectacular, coincidental, available or mediated
(selective reporting)

As a consequence neglecting to look for contradictory
facts, or fuller information to understand more complex /
gradual evolutions / situations (see range estimate
aversion...).

Selective
    exposure

(aka event selection).
Looking for and accepting
only information sources
that confirm and comfort our beliefs.

Selective
    memory


Focusing (anchoring) on some past events and neglecting
others that are too ancient, less pleasurable, or whatever.

Also, remembering only successes, not failures can lead to
repeat risky / irresponsible behaviors.

Selective
     perception

Choosing or interpreting information only in a way that
comforts our beliefs or justify our actions.

Similar or related phenomena (see the specific glossary articles)

Affect heuristic


Getting blinded by an emotion (greed, fear, hope,
empathy, hate...) that overwhelms a full and lucid
analysis of the situation

Anchoring

 




Generally any mental fixation on a past event, idea,
estimate..

More specifically to anchor on a number is an
unconscious distortion of an analysis, valuation and
negociation, either by a recently presented number,
even irrelevant with the topic oran ancient reference
point, for ex a buying price.

Belief

See certainty. A belief, right or wrong, might hinder further
observation and analysis ...except when they seem likely
to confirm the belief.

Binary logic

 


 

Seeing things only in black or white, 100% true or
100% false.
One of the Aristotle's biases / creeds.

This neglects their complexity, gradual aspects (degrees,
cursor), dynamic evolution and not clear-cut situations
and prospects (opposites: fuzzy logic, uncertainty).

(pseudo)
    Certainty

 



 

People are afraid of uncertainty, ambiguity and the
unknown.
This allergy might give them an intense painful feeling.

=> Thus, to feel comfortable, they might adopt a belief
      they take as a certainty
even if it is an illusion.

Once a belief is ingrained, people will resist later to adjust
to realities and their evolutions.

Cognitive
    dissonance

Denying mentally the reality of any information / event
that contradicts one's beliefs, knowledge, commitments,
practices...

Cognitive
    overload


Too many information (or too many legal rules) can drown
the mind and make it unable to sort what is crucial and
what is trite (noise) and also to detect important "weak
signals".

Confirmatory/
    confirmation bias



A form of cognitive dissonance and selective perception
that

* accept only information that confirm one's beliefs
* and/or interpret information according to those
   prejudices.

Denial
     of realities

Similar to cognitive dissonance.


Focalism

Similar to anchoring

Framing



 

A language or picture formulation that gives a narrow
presentation or definition
of a situation or issue,

* that omits unconsciously or deliberately some aspects

* therefore that limits and deviates its understanding and
 
the related reasoning / decisions.

Generalization

Taking aspecific event or element as a general phenomenon.

Habit

An habit can make inattentive to the evolutions of the
situation we have to deal with.

Heuristic





 

 

A simplified and quasi automatic mental way to detect
and interpret events and situations and to take decisions.
It can be based, to take the most common ones, on:

* previous beliefs and models (representativeness heuristic),

* more or less relevant "rules or thumb",

* immediate perceptions (availability heuristic, primacy
  
bias) or emotions (affect heuristic)

* obviously superficiality and mental laziness if we don't
   check how relevant
is the information.

Mental
    laziness /

    myopia

 

 

 


 

This lazy thinking can qualify many bounded cognitive
processes, such as seeing and reasoning

* on only the most apparent aspects of things

* or according to one's ingrained beliefs / certainties, using
   flawed  / apparent / binary logic

* or by limiting the conclusions and decision-making to
   the most reductive dichotomies,
skipping other possible
   solutions

See framing, narrow thinking, tunnel vision, binary logic,
availability heuristic, fallacy, reductionism...

Mimicry

Following the opinion and behavior of other people instead
of digging deeper to understand issues.

Narrow
    thinking

Using a flawed or binary logic, or taking into account only
some elements.

Numeracy
    bias



An overreliance on numbers (statistics, accounts,
probabilities, mathematical models) without wondering
about their assumptions and their realities.
Also a tendancy to prefer a precise prevision number
instead of a range of scenarios

Optimism /
    pessimism

Focusing on the favorable / unfavorable interpretations

Primacy bias

Sticking to the first impression or idea.
Similar to (availability) heuristic

Range
    estimate

    aversion

Deciding on the basis of only one projected number
(seen as the most probable) instead of a range of scenarios
allowing for alternative plans.

Rational
    ignorance

Avoiding to search search more information than the
minimum to save cost and effort.
See also cognitive overload

Reductionism

Mental phenomenon akin to generalization from a single
aspect when building a theory or making a description.

(mis-)
Representation /

Representativeness

heuristic


Once we picture, define, categorize, imagine, interpret,
express something in a way, it becomes harder to change
that representation, even if it is wrong and caricatural.
Such a stereotype (see below) can be individual or
collective.
It can be real or illusory, relevant or not to the situation.

Stereotype


A representativeness heuristic like generalization and
reductionism that allot things or people to arbitrary
categories
.

Tunnel vision


Tendency to stick to the first explanation (primacy bias)
we think, which makes it difficult to find other ones.
It can be linked to various heuristics

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This page last update: 21/08/15  

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