Key heuristics & biases

Framing (Kahneman & tversky)
1. People react differently depending whether framed as loss or gain
2. Violates completeness axiom
3. Example of 50/50 loss/gain choice
Anchoring/reference point based decision making
1. People refer to adjustments up or down from starting value or anchor
2. List of information example
3. Having realised a gain, risk-seeking increases (above anchor)
Mental Accounting
1. Different attitudes to risk depending on reason set aside
2. Violates completeness axiom
3. Rather lot more risk with some money than vice versa
4. Assumes no correlation between assets
Availability heuristic
1. Too much weight given to readily available recent info
Representativeness
1. Simplify complex problems by wrongly observing past trends and extrapolating
2. Key cause of asset bubbles/ short run momentum
Self attribution bias
1. Attribute own success to skill & failure to luck
2. Overweight private & underweight public info
3. Key cause of bubbles/short run momentum
Confirmation bias
1. Seek information which confirms previous decisions - fear of cognitive dissonance
2. Delivery van & dog example
3. Overlook disconfirming info, key cause of bubbles/short run momentum
Hot Hand Bias
1. People identify and extrapolate recent trends & continue
2. Past 6 months performance correlated with next year
3. Leads to short run momentum, exacerbated by mood
Gambler's fallacy
1. Keep making same bet, assuming probabilities are not independant
2. Causes long run reversal - Past 3 years performance reverse in next year

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Key heuristics & biases

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	Erstellt von Douglas Sayers vor fast 13 Jahre