Investor biases

Psychologists have documented systematic patterns of bias in how people form views and take decisions. Although the primary research did not usually involve investors or investment decisions, it is directly applicable to investments. These biases influence how we form investment opinions, and then how we take investment decisions. For example, the observation that most car drivers think that they are better than average drivers reflects a general characteristic of optimism and wishful thinking. It would be naive to think that this characteristic did not affect our investment views. Furthermore, people are systematically overconfident in the reliability of their own judgments, for example in assessing the chance of something happening or no....