Investor Behaviour

Decisions, Decisions

In investing (and in life), we like to believe we act rationally. But we don’t always make decisions for the reasons we think. The field of behavioural economics has proven there are social, emotional and even cognitive factors that can get in our way. By becoming aware of these tendencies – or biases – we stand a better chance of meeting our long-term investment goals.

Herding is what happens when we follow the crowd—even when the crowd may be doing something kind of nutty. Like spending more for a tulip than they’d spend on a house. Find out why “but everyone else is doing it” may be a great reason to do something else.

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Loss Aversion

What does golf’s dreaded water hazard have to do with investing?

That dreaded ‘ker-plunk’ gets in our heads and can lead some golfers to play it a little too safe. It’s the same way with investing. Too much caution can keep you from achieving long-term gains.

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Availability Bias

Does “Shark Week” keep you out of the water?

The odds of being at the sharp end of a shark attack are about 1 in 11,500,000.

But we don’t always base decisions on probability. We often base them on the first thing that comes to mind—and because of that, anything that’s recent or dramatic jumps to the front of the line. It’s why we might avoid the water during TV’s “shark week.” And it’s why a decade-old market downturn still has some investors watching from the shore.

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Home Country Bias

Would the world’s best soccer team have only Canadian players?

If you could build the ultimate soccer team, chances are you’d choose the best players from around the world.

So why do so few of us do that with our investments? The best opportunities—like the best players—come from different countries. Is Home County Bias holding you back?

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Present Bias

Who needs tomorrow when we’ve got today?

With no fridges (and an abundance of caveman-chomping carnivores) our prehistoric ancestors had to live in the moment. We don’t. But our brains are still wired for “feel good now” behavior. That’s why it can be so tempting to spend everything now instead of saving for the future.

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