5 types of behavioural biases of investors

1.Familiarity bias leads to concentration of investments in what is familiar, preventing from exploring better opportunities and meaningful diversification.
2.Recency bias leads to extrapolation of a recent event into the future, and expecting a repeat and overriding analysis in decision making.
3.Herd mentality leads to following what the group is investing in, which may work against an investors’ interests in the markets.
4.Loss aversion leads to high-risk perception and holds back investors from profitable opportunities even when the risk could be very low.
5.Confirmation bias makes investors look for additional information that conforms to their already held beliefs and prevents them from making the right analysis.


Content on this page is courtesy Centre for Investment Education and Learning (CIEL).
Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.