Discuz! Board

 找回密码
 立即注册
搜索
热搜: 活动 交友 discuz
查看: 7185|回复: 0

Confirmation Bias part one

[复制链接]

5

主题

5

帖子

27

积分

新手上路

Rank: 1

积分
27
发表于 2020-6-11 07:45:14 | 显示全部楼层 |阅读模式
ConfirmationBias part one
Central to the fields of both psychology and behavioralfinance, cognitive biases describe the innate tendencies of the human mind tothink, judge, and behave in irrational ways that often violate sensible logic,sound reason or good judgment. The average human – and the average investor –is largely unaware of these inherent psychological inefficiencies, despite thefrequency with which they arise in our daily lives and the regularity withwhich we fall victim to them. While the complete list of cognitive biases isextensive, this article focuses on eleven of the most common tendencies, chosenfor both their prevalence in human nature and their relevance to investing inthe financial markets. The purpose of this article is to educate you on thesepsychological predispositions so that you can better recognize and overcomethem in your own decision making.
Anchoring
Also referred to as focalism, anchoring is the tendency tobe over-influenced by the earliest information presented to us when makingdecisions, thereby allowing oneself to be driven to a decision or conclusionthat is biased towards that initial piece of information. This earliest pieceof information is known as the “anchor,” the standard off of which all otheralternatives are judged. Thus, subsequent decisions are made not on their own,but rather by adjusting away from the anchor.
For example, in pricenegotiations over a used car, the first price offered by the salesman sets theanchor point, from which all subsequent offers are based. By offering aninitial price of, say, $30,000, a used-car salesman anchors the customer tothat price, implementing a bias towards the $30,000 level in the subconsciousof the other party. Even if the $30,000 offer is significantly above the truevalue of the car, all offers below that level appear more reasonable and thecustomer is likely to end up paying a higher price than he or she originallyintended.
While the used carexample may seem somewhat harmless, psychologists have captured the effects ofthe anchoring bias in other more significant settings. For example, researchershave shown that court decisions of judges can be swayed significantly byanchoring effects. In one setting, judges were presented with details of acourt case and asked to award damages to the appropriate party. Some of thejudges were provided with a low anchor (a low damage estimate) while otherswere provided no anchor. On average, damages awarded by judges who were giventhe low anchor were 29% less than those awarded by the non-anchored judges. Ina similar study, judges were provided details of a case and asked to determinethe duration of an appropriate prison sentence. The anchor given to the judgeswas set by rolling two dice on the table directly front of them. Even when theanchor was set completely randomly in this fashion and its source was witnessedby the judges, the study showed that their
sentencing decisions were still subject to the anchoringeffect and biased when a high dice number was rolled.
In a financial market setting, anchoring is at play anytimethe estimates or expectations of another party are allowed to influence yourown judgments. For example, if a price target for a stock that you areconsidering is set by a particularly vocal Wall Street analyst at $200.00, yourown estimates for that security’s potential price movement can be easily swayedtowards that figure, potentially blurring your clarity of thought, inflatingyour expectations and dragging you into a poor decision.
Aversion to loss andthe effect of the stay
First appeared by prominent psychologists Amos Tversky andDaniel Kahneman, the notion of loathing loss to human inclination indicates apreference for decisions that allow us to avoid losses over those that allow usto gain. Hating a loss, for example, means that the pain of a $ 500 loss ismuch greater than the satisfaction that it will get from a $ 500 gain. Numerousstudies on aversion to loss commonly suggest that human perception of loss istwice the gain strength. This forms the basis of what is known as probabilitytheory, and it is the concept of behavioral economics that describes the waypeople choose between potential risk alternatives. In essence, Prospect'stheory shows that loss is more important than equivalent profit. On the graph,the value function of the Prospect Theory developed by Tversky and Kahnemanforms the following curve, whose unequal form shows the unequal value ofidentical gains and losses:
Aversion to loss is discussed at length not only inpsychological studies of how humans make decisions, but also in economics. Ineconomics, aversion to loss is a basic concept at work when looking at howindividuals behave in risky scenarios. Since individuals prefer avoiding lossesover making gains, loathing the loss causes us to avoid risks when assessingresults with similar gains and losses.
Hate of loss wasfirst proposed by Kahneman and his colleagues in 1990 as an interpretation of aclosely related concept known as the endowment effect. The endowment effectdescribes the human tendency to place more value on a commodity that we possessthan we do on an identical commodity that we do not possess. Together, aversionto loss and the impact of the endowment violate the fundamental economicprinciple known as the Coase Theory, which states that "resourceallocation will be independent of the assignment of property rights when tradeis at no cost possible". Research has shown that even when the tradeinvolves no cost, ownership still creates discrepancies in the perceived valuebetween the parties due to the effect of the moratorium.
For example, the researchers demonstrated the effect of themoratorium by distributing a cup of coffee to each study participant and thengiving them the opportunity to sell or trade the cup for an alternative good(in this case, pens) of equal value. On average, the compensation thatparticipants requested to dispose of the cup (their willingness to accept) wasalmost twice higher than the amount they were willing to pay for the cup (theirwillingness to pay). In only a few minutes, the participants who obtained a cupattributed the property to the object, which raised their awareness of itsvalue. Another popular study on the effect of a moratorium found that the defaultsale price of NCAA Final Four basketball tickets was an average of 14 timeshigher than the participants' default purchase price. Even when it iscompletely fictional, the ownership (stopping) of tickets enhances itsperceived value.
By linking theconcepts of aversion to loss and the effect of a moratorium again on financialmarkets, it is easy to see how these trends can affect an investor. A lossaversion has a clear effect on our risk tolerance before and after thetransaction is executed. Besides other cognitive biases, our tendency to moveaway from loss can lead to denial where losses accumulate in a vulnerableposition, for example, causing neglect of weak situations in an attempt toreduce their emotional impact. Likewise, if the endowment's influence leads usto place more value on security just because we feel a sense of ownership overit, that emotional attachment can lead to a vague judgment when it is time tosell.
SIGN UP FOR A FREE TRIAL To Access FREE Forex Signals in theMembers Area  START FREE 30 DAYS TRIAL on https://www.freeforex-signals.com/

free forex signals presents special offer
open trading account with one of the
回复

使用道具 举报

您需要登录后才可以回帖 登录 | 立即注册

本版积分规则

Archiver|手机版|小黑屋|Comsenz Inc.  

GMT+8, 2021-3-3 10:49 , Processed in 0.053046 second(s), 22 queries .

Powered by Discuz! X3.2

© 2001-2013 Comsenz Inc.

快速回复 返回顶部 返回列表