Market Psychology & Behavioural Finance

The tendency to follow the actions of a larger group rather than one's own analysis.

Test: the decision follows what others are doing, without independent evidence being gathered or weighed qualitative

The tendency to believe, after an event, that it was more predictable than it actually was.

Test: recalled prior probability estimates shift toward the outcome that actually occurred qualitative

Market Psychology & Behavioural Finance

The tendency to hold a far larger proportion of domestic assets than global market weights would suggest.

Test: domestic allocation substantially exceeds the home market's share of global market capitalisation %

Market Psychology & Behavioural Finance

The belief that a run of successes will continue because the performer is on a streak.

Test: the predicted probability of continued success rises with the length of a prior run of successes qualitative

Market Psychology & Behavioural Finance

Taking greater risks with money regarded as winnings than with money regarded as one's own.

Test: risk tolerance rises after gains, treating profits as a separate account with lower value qualitative

Market Psychology & Behavioural Finance

Discounting future rewards at a rate that falls as the delay increases, producing inconsistent preferences over time.

Test: preference between two future rewards reverses as both move closer in time, though the interval between them is unchanged qualitative