Biases can lead to irrational investment decisions from "summary" of Your Money and Your Brain by Jason Zweig
When you invest, your brain can quickly become your worst enemy. It is not just that you are not as smart as you think you are - although that is certainly true. Your brain is designed to help you survive, not to make you rich. And that means you are hardwired for a world that no longer exists. Your ancient brain is perfectly adapted to the Pleistocene era, when you had to dodge sabre-toothed tigers and scavenge for food. But it is no match for the modern world of stocks, bonds, and mutual funds. Your brain doesn't care about making you rich. It cares about making you survive. As a result, it is full of cognitive illusions that can lead you to make foolish investment decisions. These illusions are not random quirks of your brain. They are systematic biases that have been documented by psychologists and economists for decades. When you invest, you are not just facing the market. You are also facing your own brain - and that can be a much tougher opponent. One of the biggest biases that can trip you up is overconfidence. Most of us think we are smarter, better-looking, and more talented than we really are. And that overconfidence extends to our investing abilities. We are convinced that w...
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