Behavioral finance FAQ / Glossary (Delaying)

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Delaying tactic


See anchoring, status quo bias,
underreaction, inertia,
paralysis,
procrastination, indecision,
decision

Tomorrow will be another day, OK!

But what about the day after tomorrow?

Definition

Delaying tactics are conscious (*) practices of postponing decisions
or actions for too long,

(*) The word "tactics" supposes an analysis by the player.

This is more elaborate than instinctive / fearful procrastination.

Sometimes this is done for practical, or even strategic
motives.

But more often the cause is that the deciders feel

unhappy to make choices / decision and to act, thus
they try to "gain time".

Actually there is a rather general decision aversion (see decision /indecision),
because it is an effort or because of underconfidence.

It might also explain why the default solution or the status quo bias is so
often preferred

Delaying and   financial markets

Banknotes between the fire and the frying pan

Market players have to take into account that markets are at the same
time
:

Arenas where speed can be essential

Shoot
or be shot!

  Typical fields of "decision under risk and
      uncertainty" that need clear analyses 
      of what is at stake, therefore prone to delaying.

Shoot only
when
you
find the
target!

Delaying decisions might even be a way of life for some market players.

Some large financial institutions make extensive analysis before making
decisions.

This can be OK if they manage for the long term.

But it becomes counterproductive when neuronal brakes such as anchored
and
common beliefs / conventions make miss crucial new event features that
should make them react fast.

Conversely, while many investors tend to underreact to events,
the pitfall for others can be a frantic uncontrolled urge to act, even in
the absence of relevant new information, except "noise", a practice
called "overtrading" (see that word).

Delaying is OK in some cases...

Whatever some impatient people believe, thinking before
acting is usually not a crime. It can even avoid one.

But thinking instead of acting might be one.

In some situations an obsession with speed can send you to the ditch,

then it is safer to "wait and see".

There is often a normal initial phase of doubt about the
effectiveness of doing something (although this puzzled reaction might be
caused by lack of anticipation and preparation).

It can be counterproductive to decide
hastily and act impulsively without:

Letting emotions cool off (sleeping over it)

Getting enough information and analyzing their potential impact,

Having thought deeply enough about an appropriate plan,

Having made some preparations, and got ready for

contingencies and for the next phases.

...or a disastrous bias in others.

The world might not stop its course
and wait until we are ready to decide.

On the other hand, delaying a decision that must be made, something more
crucial than choosing between fish and meat in the menu, can be unconsciously 
a biased behavior.

Instead of a real tactic, dithering is then a mental inertia.

It can have disastrous effects, for example by under-reacting when facing
an emergency
.

Back to markets

Buy, sell or wait?

The delaying attitude, when applied to markets:

Is wise and appropriate in some cases:

when the state of affairs makes it inopportune to act at the moment,

also as the opposite of hyperactivity and overtrading, the urge to buy
   and sell at all times,

But becomes damaging when it leads to a recurrent indecision
    against adjustments
that are necessary to one's holding.

This bias is seen among many investors who tend
to underreact (see underreaction) to

new events that really change

the market situation or the corporate prospects.

What can make of dithering a bias?

What is freezing the legs?

Dithering, when irrational and biased, might have various origins:

Lack of attention or interest, or mental blocks

Apathy, neglect, laziness ,  

A false hope that things will turn right by themselves,

or other emotional biases (disposition aversion for example),


A fear of the unknown

A resistance to change one's behavior peppered with cognitive

 dissonance (see that phrase),

In the same line of thought, a conservatism or at least a poor

adaptation to internal / external changes, because of a

commitment to past actions and an anchoring on
past forecasts,

Unhappiness at doing something difficult and
    unpleasant
,


Pathologic inability to decide between the pros and cons

of each option (see "extreme case" below),

Remember the Buridan's donkey, dying from indecision
when facing a choice between its water bucket and its
bale of hay.

Inertia, or even paralysis / mental freezing as a
    (passive)
form of panic (see that word).

Over or under-preparation

An information bias or numeracy bias (see those phrases),

This is a perfectionist / insecure thinking, never satisfied with

the gathered information and wanting always more
details and confirmations.


Plain unreadiness, a lack of foresight and previous analysis
    (and testing, when possible) of various possible scenarios and
    options.

This is the "caught with one's pants down" effect.

This could be linked to overconfidence and self-
satisfaction (complacency).

Extreme cases:
    from delaying to
inaction 

Aversion to decide and to take actions.

Is this under-confidence or status quo bias?

Shy or backward looking?

Inaction can be caused by:

* A recurrent and extreme procrastination,

* An inhibition or aversion to decide and act,

* A refusal to take any risk whatever the

circumstances,

* An anchoring on past situations

All those moves and feelings lead to the "status
quo bias"
(see that phrase).

Some people tend to procrastinate in all situations,
    whatever the
emergency,

This might hide

* an attitude of underconfidence (or sometimes overconfidence in one's
   past forecasts and decisions),

* or just a systematic underreaction because of laziness or mental
   blocking.

Inertia applies not only to reactions to occasional events.

This is even truer for adaptation to deep evolutions.

People usually dislike to change their practices (resistance to change).

This seems rather ingrained in the human mind, out of habit, mental
laziness, or cognitive dissonance,
.

People tend to invent rational motives to justify their inaction
(see rationalization).

This lack of vision and reaction strikes individuals but also groups,
businesses, institutions, and even populations, countries and civilizations.

What might happen after delaying?

Can lost time be recovered?

Are we able to run after the train?

A phase of underconfidence might be followed later by overconfident or
panicky reversals of attitude.

A stop and move, accordion like, behavior.

In financial markets, that chain of behaviors is often
contagious and takes place in three phases

1) In the beginning, an underreaction (see that word) to 
   
events / info,

2) Followed by adjustment,

3) And later by an overreaction:

Then the rush of people who suddenly decide to act, after 
delaying the decision, reaches the "critical mass" (see percolation).

3b) That general overreaction is usually mixed with an 
       
underreaction by some investors.

  Although they know that assets are becoming underpriced
  or  overpriced, they don't want to be the first ones to start
  to
operate in the other direction.

Here starts the phase 1) of the next cycle-trend.

This chain of reactions contributes to alternations of

upwards or downwards trend / momentum.

In cases of upwards trends (bull markets), overreaction can bring,
    after a while, the opposite bias.

It can cause a continuous "panic buying" (see panic), an urge to act
at all times (bias for action) while the market is hot, to taste all the
goodies while the buffet is still open, which causes "overtrading" (see
above).

The same thing, a bit more subdued because of the "loss aversion" (see
    that phrase), can take place when the trend is downwards, which can
    end into "panic selling" (see capitulation).

(*) 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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