Traditional finance assumes investors are rational and that markets are efficient.
In practice, we know that this isn't the case. Real-world investors are influenced by emotions, biases, and imperfect information, which often lead to irrational decisions. And markets are often inefficient, with prices deviating from fundamental values—by a large margin, and for extended periods.
Without recognizing behavioral factors and understanding market dynamics, investors are at risk of falling prey to common investment mistakes such as overtrading, performance chasing, and panic selling.
In this presentation, we investigate behavioral biases and highlight strategies that investors can implement to avoid common investment mistakes. Specifically, we look to answer these main questions:
- What is behavioral finance?
- Why do behavioral biases matter?
- Where do biases come from? What are some common examples?
- How can we manage our biases?
- How does this all fit together?
