Question

Explain the main human traits in behavioral finance.

Answer 1

In behavioural finance the biases that humans undergo while taking investing decisions are,

Disposition bias:

Investors want to realize earnings/profits as quickly as possible. Due to this reason, they sell of shares which can reap huge profits and hold the shares which are trading at low values in fear of getting losses

Confirmation bias:

Investors has the bias to only accept the information that they have already believed or in lines of thier belief and are reluctant to accept any information in opposition to their beliefs

Experiential bias:

Investors believe that the events that have recently experience are tend to repeat again. So, they become consicous about the similar events

Loss aversion:

Investors are more worried about the losses than the happiness they experience when they get gains

Familiarity bias:

Investors tend to invest in companies that they know. They are mostly not willing to research about the companies they do not know to invest instead they invest in already known companies