465705
Description
Mind Map by Douglas Sayers, updated more than 1 year ago
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Created by Douglas Sayers
over 11 years ago
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Key heuristics & biases
- Framing (Kahneman & tversky)
- People react
differently
depending whether
framed as loss or
gain
- Violates completeness axiom
- Example of 50/50 loss/gain choice
- People react
differently
depending whether
framed as loss or
gain
- Anchoring/reference point based
decision making
- People refer to adjustments up or down from starting value or anchor
- List of information example
- Having realised a gain, risk-seeking increases (above anchor)
- People refer to adjustments up or down from starting value or anchor
- Mental Accounting
- Different attitudes to risk depending on reason
set aside
- Violates completeness axiom
- Rather lot more risk with
some money than vice
versa
- Assumes no correlation between assets
- Different attitudes to risk depending on reason
set aside
- Availability heuristic
- Too much weight given to readily available recent info
- Too much weight given to readily available recent info
- Representativeness
- Simplify complex problems by wrongly
observing past trends and extrapolating
- Key cause of asset bubbles/ short
run momentum
- Simplify complex problems by wrongly
observing past trends and extrapolating
- Self attribution bias
- Attribute own success to skill & failure to luck
- Overweight private & underweight public info
- Key cause of bubbles/short run momentum
- Attribute own success to skill & failure to luck
- Confirmation bias
- Seek information which confirms previous decisions - fear of cognitive
dissonance
- Delivery van & dog example
- Overlook disconfirming info, key cause of bubbles/short run
momentum
- Seek information which confirms previous decisions - fear of cognitive
dissonance
- Hot Hand Bias
- People identify and extrapolate recent trends &
continue
- Past 6 months performance
correlated with next year
- Leads to short run momentum, exacerbated by
mood
- People identify and extrapolate recent trends &
continue
- Gambler's fallacy
- Keep making same bet, assuming probabilities are not independant
- Causes long run reversal - Past 3 years performance
reverse in next year
- Keep making same bet, assuming probabilities are not independant
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