Warning signs for investors: These cognitive biases may lead to gambling Read on to know the red flags to watch out for while investing
Cognitive biases may lead investors to choose risky investment options which may turn into a gamble and result in huge losses. Know what these biases are to ensure that you take wise investment decisions.
#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
STAGE 1: REASON FOR INVESTING
Sensation-seeking: This personality trait makes people look for exciting, intense, new experiences, typical of gamblers. This usually translates to different, high-risk investments like futures & options, day trading or cryptos.Greed, or desire for quick, big gains: This need for ‘making a killing’ drives most gamblers, as well as investors with no knowledge of products, or those in financial distress.
Social proofing: This is a psychological phenomenon where unsure investors mimic those who have had good experiences in a particular type of investment. So when they see people making huge gains in crypto or penny stocks, they will follow suit.
Leadership
Validating Your Startup Idea: Steps to Ensure Market Fit
By - Dr. Anu Khanchandani, Startup Coach with more than 25 years of experience
Web Development
Master RESTful APIs with Python and Django REST Framework: Web API Development
By - Metla Sudha Sekhar, IT Specialist and Developer
Leadership
Building Your Winning Startup Team: Key Strategies for Success
By - Dr. Anu Khanchandani, Startup Coach with more than 25 years of experience
Finance
Financial Literacy i.e Lets Crack the Billionaire Code
By - CA Rahul Gupta, CA with 10+ years of experience and Accounting Educator
Marketing
Digital Marketing Masterclass by Neil Patel
By - Neil Patel, Co-Founder and Author at Neil Patel Digital Digital Marketing Guru
Web Development
Intermediate Java Mastery: Method, Collections, and Beyond
By - Metla Sudha Sekhar, IT Specialist and Developer
Finance
A2Z Of Finance: Finance Beginner Course
By - elearnmarkets, Financial Education by StockEdge
Leadership
From Idea to Product: A Startup Development Guide
By - Dr. Anu Khanchandani, Startup Coach with more than 25 years of experience
Data Science
MySQL for Beginners: Learn Data Science and Analytics Skills
By - Metla Sudha Sekhar, IT Specialist and Developer
Web Development
Advanced Java Mastery: Object-Oriented Programming Techniques
By - Metla Sudha Sekhar, IT Specialist and Developer
Artificial Intelligence(AI)
Master in Python Language Quickly Using the ChatGPT Open AI
By - Metla Sudha Sekhar, IT Specialist and Developer
Web Development
A Comprehensive ASP.NET Core MVC 6 Project Guide for 2024
By - Metla Sudha Sekhar, IT Specialist and Developer
Leadership
Crafting a Powerful Startup Value Proposition
By - Dr. Anu Khanchandani, Startup Coach with more than 25 years of experience
Artificial Intelligence(AI)
Mastering C++ Fundamentals with Generative AI: A Hands-On
By - Metla Sudha Sekhar, IT Specialist and Developer
Marketing
Modern Marketing Masterclass by Seth Godin
By - Seth Godin, Former dot com Business Executive and Best Selling Author
Web Development
JavaScript Essentials: Unlock AI-Driven Insights with ChatGPT
By - Metla Sudha Sekhar, IT Specialist and Developer
Marketing
Digital Marketing Masterclass by Pam Moore
By - Pam Moore, Digital Transformation and Social Media Expert
Artificial Intelligence(AI)
AI and Analytics based Business Strategy
By - Tanusree De, Managing Director- Accenture Technology Lead, Trustworthy AI Center of Excellence: ATCI
Office Productivity
Advanced Excel Course - Financial Calculations & Excel Made Easy
By - Anirudh Saraf, Founder- Saraf A & Associates, Chartered Accountant
Also read | Are you investing or gambling? How you can avoid losing money to risky investment choices
STAGE 2: PRODUCT SELECTION
Herd mentality: Investor segments with no knowledge of investing and low socio-economic profiles typically follow what the masses are doing. If you don’t know why or how you are investing, it’s a gamble.Survivorship bias: This bias makes people invest by focusing only on selective information put out in the public. So when friends or influencers declare the fortune made via day trading or derivatives without mentioning their losses, people rush to make poor investing choices.
Also read | This type of investors are likely to be drawn to highly risky investments
STAGE 3: EARLY RETURNS (in case of profits)
Illusion of control bias: A bias common to gamblers, this makes investors believe they can control the outcome of an investment when, in fact, they can’t. This leads them to invest more in an instrument that they may know nothing about, and result in losses.Optimism bias: This makes a person overestimate the likelihood of positive outcomes and underestimate the possibility of negative results. So early profits give the illusion of ability and belief that they will always win.
STAGE 4: MID-STAGE RETURNS (massive losses)
Revenge trading: This is a trait that makes people dig a deeper investing grave for themselves in an effort to redeem their losses. Angered by a loss, they invest more as a way to avenge it, almost always ending in a bigger loss.Emotional instability: This trait is typical of gamblers who are impacted very strongly by even small wins or losses. In investment, it translates to irrational decisions and imminent large losses.
STAGE 5: END STAGE (compounding losses)
Loss aversion bias: This bias makes people averse to losses because losing a small amount affects them more deeply than earning a bigger amount. To redeem the financial loss and fallen pride, they keep investing in a losing stock, putting good money after the bad.Gambler’s fallacy: This bias, very visible in gamblers, makes an investor believe that a random outcome is more likely because a series of opposite events has happened. So if they have been incurring losses in a stock for a long time, they are convinced that it will make a comeback soon.
#sr_widget.onDemand p, #stock_pro.onDemand p{font-size: 14px;line-height: 1.28;} .onDemand .live_stock{left:17px;padding:1px 3px 1px 5px;font-size:12px;font-weight:600;line-height:18px;top:9px} #sr_widget.onDemand .sr_desc{margin:0 auto 0;} #sr_widget.onDemand .sr_desc{color: #024d99;margin-top:10px;} #sr_widget.onDemand .crypto .live_stock .lb-icon{8px 6px 5px 3px !important} #sr_widget.crypto.onDemand a.text{border-bottom:1px solid #ccc;padding-bottom:5px;display:block;width:100%} #sr_widget.onDemand .sr_desc .text p, #stock_pro.onDemand .sr_desc .text p{font-size:12px;font-weight:400;}
This story originally appeared on: India Times - Author:Faqs of Insurances
