Behavioral biases affect financial decisions from "summary" of The Economic Naturalist by Robert H. Frank
Behavioral biases have a significant impact on our financial decisions, often leading us astray from making rational choices. These biases stem from our natural tendencies as humans, such as our inclination to avoid losses and seek immediate gratification. As a result, we may overlook important factors or fail to assess risks accurately when making financial choices.
One common behavioral bias is loss aversion, where individuals are more averse to losses than they are motivated by equivalent gains. This can lead to a reluctance to sell assets that are declining in value, in the hope that they will rebound in the future. As a consequence, individuals may miss out on opportunities to minimize losses and optimize their financial outcomes.
Another bias that influences financial...
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