Behavioral finance in practice

Some precautions investors should
not neglect about their own behavior

 

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Behavioral finance FAQ / Glossary

Behaviors
to take care of

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1 - Activity:

Avoiding inertia
and indecision but
also hyperactivity

* Active / passive investing * Addiction * Bias for action * Boredom * Conservatism bias
* Decision-making * Delaying * Hyperactivity * Inertia * Lazy thinking * Noise trading
* Overreaction / underreaction * Overtrade, overtrading * Passive investing / management
* Procrastination * Short term bias * Status quo bias * Undertrading

2a - Anchoring:

Trying not to be
anchored on past
references / values

* (under / slow) Adjustment * (mental) Anchor/ Anchoring * Belief * Confirmatory /
   confirmation bias * Dominant mental interest * Habit * Hindsight bias * Primacy effect
* (mental) Reference point * Range estimate aversion * Repetition errors / mistakes
* Selection bias * Selective
(attention / exposure/ memory/ perception / reporting)
* Stubbornness

2b - Reaction:

Being sure to adjust 
to new situations
and information

* Cognitive consonance / dissonance * Denial (of realities) * Information (dissemination of,
    incidence of)
* News (effect of, / reaction to) * Reaction (to info, news, events, signals)
* Underadjustment * Underreaction / overreaction

 

2c - Automaticity

Check for
unconscious
reflexes and habits

* Addiction * Attention anomaly * Automaticity / autopilot bias * Availability heuristic
* Habit * Representativeness heuristic * Reflex



3 - Framing,
     heuristic:

Avoiding narrow
interpretations and
over-simplifications

(See also 2a. Anchoring, a type of heuristic) * Availability bias * Compartmentalization
* Dominant mental interest * Frame (dependence, effect) / Framing (bias) * Generalization
* (availability, representativeness) Heuristic * Knowledge acquisition * Mental accounts /
compartments * (mental) Myopia * Narrow thinking * Oversimplification * Reductionism
* (mental/cognitive)  Representation * Representativeness heuristic * Stereotype
* Paradigm * (decision) Paradoxes * (good) Story * Tunnel vision * Wealth frame
* Wealth effect

4 - Fallacy,
     attention:

Revising wrong
knowledge and
beliefs

 

* Attention anomaly * Base rate neglect * Bounded rationality * (logical) Fallacy * Cluster
illusion * Cognitive (bias, overload, psychology, trap) * Cost averaging * Curse of knowledge
* Gambler's fallacy / paradox * Goodhart law * Hindsight bias * Logical fallacy * (short,
long) Memory * Misperception * Misrepresentation * Monetary illusion * Numeracy bias
* Perceived risk, risk perception * Perception * Round number anchoring * (risk of) Rare
events * Recency bias, effect * Salience * Small numbers * Stupidity * Sunk-cost fallacy
* (statistical)  Tail risk * Uncertainty (vs. risk)

5a - Attitude
(Aversion):

Avoiding biased
pleasure / pain
expectations
after decisions


5b - Attitude
(Emotion):

Avoiding primacy
of emotions over
reason

* (common) Attitude * Aversion, disposition and prospects * (disappointment, loss, risk, regret,
uncertainty... )
Averse, Aversion * Disappointment aversion * Disposition effect * Get even
bias * Risk (attitude, aversion, neutral, perception, tolerance) * Loss averse, aversion
* Prospect theory
* (expected) Regret * Regret (aversion / avoidance / minimization)
* Selling aversion * Uncertainty aversion * Throwing the sponge



* Affect, affect heuristic * Attachment bias * Commitment effect * Compulsion / ive
* Greed (& Fear) * Confidence * Divesture aversion * Emotion * Emotional bias
* Emotional intelligence/ literacy / reasoning * Endowment effect * Familiarity
* (Greed &) Fear * Feeling * Foot in the door * Home bias * Hope (& fear) * Irrationality
* Neuroeconomics * Optimism  / optimistic bias, overoptimism * Proximity bias
* Rationalization, rational expectation

6a - Mimicry:

Being wary of
biased social
influence on
decisions



* Bandwagon * Beauty contest * Bigger fool delusion * (Information) Cascade
* Conformity * Common (Belief, Convention, Knowledge, Paradigm * Consensus
* Groupthink * Craze * Crowd behavior * Culture * Deification / demonification
* (rational-mimetic) Expectation * Fad * Fashion * Group behavior * Herding *(mass,
    crowd, collective)
Hysteria * Imitation * Mania (collective) * Mass behavior * Meme
* Mimicry * Momentum investing / trading * (general /  social)  Mood * Neighborhood
    effect * Noise trading * Trend following * Peer  pressure * (market / investor)
    s
entiment * Social (anomaly, behavior, bias, cognition, influence, learning, psychology
    * Viral communication


6b - Manipulation:

Being wary of
deliberate biased
influence

* Buzz * Cognitive manipulation * Deception * Guru * Hype * Manipulation * Media
 distortion
* Obedience to "experts" * Propaganda * Pump and dump * Rumor
* Signaling * Spin

7 - Magic:

Being wary
of illusive
expectations

* Certainty effect * (illusion of) Control * Expectancy bias / effect * Gullibility * Illusion
* Magical thinking, numbers * Mysticism, mystical, mystique * Mojo * Numerology
* Superstition * Wishful thinking

8 - Pride:

Trying not to be
blinded by one's
ego

* Attribution bias / error * (illusion of) Competence * Complacency * (illusion of)
   Experience * Hubris * (illusion of) Knowledge * Narcissism * Overconfidence,
   overconfident * Pride * Projection bias * Self attribution * Self control bias, self
   discipline bias * Self esteem * Self-delusion * Self-illusion * Self-serving bias
* Underconfidence, underconfident * Winner's curse

9 - Preferences:

Having clear and
consistent
priorities

* Competition - cooperation * Discipline * Empathy * Ethical, ethics * Expectation
* Fairness * (Investment) Time horizon, preference, span * Game playing * Genetic utility
* House money * Investor style * Long bias, longshot bias * Motivation * Ophelimity
* Preferences  (interactions, reversal, intransitivity, transitivity) * Transitive preferences /
   reasoning * (expected) Utility * Willpower

10 - Tilting:

Trying to use or
to protect from
market
mispricings

* Anomaly * Asymmetry * Bubble / crash * Critical threshold * Cycle * Debiasing
* Distribution curve anomaly * Dynamical system * Extreme * Extrinsic value * Tat tail
* Feedback loop * Fuzzy logic * Inefficiency * Misalignment * Mispricing * Non-linearity
* PBR / PER effect * Percolation * Persistence * Perverse effect * Profile (stock,
   investor)
* Reflexivity * Risk premium * Rotation (of attention, interest, image)
* (economic) Sector
/ concept fad * Stock image * Tilting * Trend * Underpricing /
   overpricing * Valuation /
Value * Vicious / virtuous circle * Winner's curse
* Yin yang asset valuation

Also: Stock pricer

separ

  This page last update: 12/11/13
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