Overview
Cognitive biases play a significant role in economic decision-making, influencing how individuals and markets behave. Understanding these biases, such as loss aversion and overconfidence, can help individuals make better financial choices and avoid common pitfalls. By recognizing the impact of biase...
Key Terms
Example: A person may base their salary expectations on their previous job's salary.
Example: Investors may hold onto losing stocks to avoid realizing a loss.
Example: An investor may believe they can predict market movements better than they actually can.
Example: Many investors may buy stocks simply because others are buying.
Example: Behavioral economics explains why people might save less than they should.
Example: An investor may feel conflicted about selling a stock they believe is losing value.