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Market Psychology & Behavioural Finance

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Market Psychology & Behavioural Finance

Data Mining

Searching data for patterns until something appears significant, without a prior hypothesis.

Expected False Positives = Number of Independent Tests x Significance Level ratio (x, times) Market Psychology & Behavioural Finance

Disposition Effect

The tendency to sell winning positions too early and hold losing positions too long.

Test: the proportion of gains realised exceeds the proportion of losses realised, across a portfolio over time qualitative Market Psychology & Behavioural Finance

Dunning-Kruger Effect

The tendency for people with limited competence in a domain to overestimate their ability in it.

Test: self-assessed ability is highest relative to actual ability among the least skilled, because assessing skill requires the skill itself qualitative