Emotional bias in investing refers to the influence of emotions on financial decision-making that can lead to sub-optimal outcomes. Some examples of emotional biases in investing are:
Fear of loss: This is when an investor becomes overly cautious and avoids investing in the market because of the fear of losing money. This can lead to missing out on investment opportunities.
Greed: This is when an investor becomes overly optimistic and chases returns, leading to impulsive and poorly thought out investment decisions.
Overconfidence: This is when an investor is overly confident in their own abilities and disregards the risks involved in a particular investment.
Anchoring: This is when an investor becomes fixated on a particular price or expectation, and fails to adjust their expectations based on changes in market conditions.
Herding: This is when an investor blindly follows the crowd, rather than using their own judgement and research to make investment decisions.
These emotional biases can lead to sub-optimal investment outcomes and it is important to be aware of them and to strive to make investment decisions that are based on logic, research and data, rather than on emotions.
