Key Points
Similarly, Richard Thaler's work on discovering critical behavioural errors - bounded rationality, lack of self-control, and mental accounting, among others - has found great application in the real world..
A slew of mental errors - biases - exist that disproportionately impact investors' choices..
Similarly, cognitive dissonance is at play whenever some negative news of the invested company surfaces, and the investor is likely to either rationalise the news to view it as insignificant or rather blame circumstances for making irrational investments...
Now, a conservative passive investor is likely to harbour emotional biases like regret aversion - being indecisive for fear of making a poor decision - and loss aversion and cognitive biases like mental accounting - valuing the same amount of money differently, often based on certain subjective categories of mental accounts, and anchoring and adjustment bias...
If you're an individual concerned about the biases you inherently harbour, the advice for you is to become more self-aware of your mental patterns by maintaining a journal for self-introspection and by practicing mindfulness...
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