Behavioral Economics2020-05-24T06:40:43-05:00

Behavioral Economics

15 Examples of Loss Aversion

Loss aversion refers to our tendency to strongly prefer avoiding losses over acquiring gains. This behavior is at work when we make choices that include both the possibility of a loss or gain. For example, when making investment decisions we most often focus on the risks associated with the investment rather than the potential gains. The loss aversion bias is not always dreadful to have, as in many cases it is beneficial to our way of life. Naturally responding more powerfully to threats than to opportunities is a clear example of our innate survival instinct. A benefit of loss aversion [...]

By |August 16th, 2016|Behavioral Economics|2 Comments

You May Think You’re “Rational Investing” But Are You?

Warren Buffett and Charlie Munger, possibly the most successful investors of our time, have regularly emphasized the importance of rational investing or just being “rational” human beings. When Charlie was asked, “What one word accounts for your remarkable success in life?” his response was “rational.”1  Warren Buffett thinks similarly as seen in Berkshire's annual letter where he stated his successor will be a rational, calm and a decisive individual”.2 So What's Rational Investing? Rational is to be sane, reasonable, of sound judgment, and to derive from reason.  As a fresh and ignorant investor, you may, as I did, think [...]

By |July 5th, 2016|Behavioral Economics|0 Comments