Behavioral Finance Basics

Impediments Influencing Human Behavior

A growing body of behavioral finance research over the last 40 years suggests that humans have cognitive limitations that often result in seemingly irrational decisions. A host of biases, heuristics and emotional factors guide our thinking, often leading to sub-optimal outcomes. These impediments affect the most novice and the most professional investors alike and can include overconfidence/ego, information overload, herding, familiarity bias, loss aversion and anchoring. Below are common behavioral finance concepts that can affect decision making, and how they may influence Wall Street analysts.

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