The 'Availability Bias' Is Driving Investor Decisions - Business Insider - 0 views
www.businessinsider.com/ing-investor-decisions-2012-10
availability decisions knowledge psychology Bias research
shared by sanderk on 24 Oct 19
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What availability bias tells us is that investors’ lingering perceptions of a dire market environment may be causing them to view investment opportunities through an overly negative lens, making it less appealing to consider taking on investment risk, no matter how small the returns on perceived “safe” investments.
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“Imagine if I was a financial advisor and you came to talk to me about your risk attitude, and I started the discussion by asking you to describe how you felt in the last three years on the days when your portfolio lost 5% of its value. Then I asked you what your risk attitude was. Most people would say they don’t want to ever experience days like that again. On the other hand, what if instead I talked about people I knew who were retired and living in the Bahamas, fishing and golfing. Now your risk attitude would probably be different.”
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As humans, our thinking is strongly influenced by what is personally most relevant, recent or dramatic.
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lingering perceptions based on dramatic, painful events are impacting decision-making even when those events are over.
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Ariely said a home country investment bias might be generated by two perceptual factors.“The first is an overly optimistic belief about one’s own economy; an expectation of performance in their country that is higher than what would be statistically realistic. The second reason is most likely due to procedural difficulties in investing outside the country – such as less knowledge about how to access these markets.”
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investors may be making decisions driven more by personal bias or irrational belief than by reality and, in doing so, they may be hindering their own investment success.
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The problem? These decisions may hinder their ability to reach their desired retirement or savings goals. The choice is between changing the goal—or changing the means of reaching it.