Bazerman - Chapter 7

Front 1

Overconfidence

Back 1

Overconfidence leads people to believe in their own abilities and more ACTIVE investing even though, index funds outperform managed funds.

Individual investors buy and sell too often.

Men buy and sell more than women.

Front 2

Optimism

Back 2

Investors make overly confident decisions and maintain overly optimistic views of the future success.

Scenrio Thinking:
"Because I can imagine it, we think it is more likely to happen.
- Not considering all the risks

Front 3

Denying Randomness

Back 3

We often believe that random events are not really random.

We believe that a hot fun has done well because of the fund managers talent, not luck.

We ignore regression to the mean.

Front 4

Anchoring & the Status Quo

Back 4

We stick with the default investment allocations.

Keep what is given to us.

When we do change, the change is smaller than compared with those that do not have a default allocation.

Front 5

Procrastination

Back 5

Investments Involve immediate expenditures(loses) for a future gain.

Procrastination and Discounting:
Initial Value is too much, future gain is ignored.
Omission bias - difficult decision, so just not make a choice

Front 6

Prospect Theory

Back 6

We are risk seeking with losers and risk averse with winners.

As a result we hold on to losers too long and sell winnders too soon.