Why Not Mint Money Why do you need to be aware of behavioral biases?
May 19, 2025
In this discussion, Karthick CS, co-founder of Knowise, delves into how emotional biases impact investment decisions. He highlights common pitfalls like anchoring and recency bias that skew perceptions of market movements. Karthick emphasizes the need for self-reflection and mathematical asset allocation strategies in navigating market volatility. Listeners will discover the importance of maintaining diversification and rebalancing to enhance investment outcomes and foster rational decision-making in the face of emotional influences.
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Mental Accounting Bias Anecdote
- An investor thought his initial investment was "real money" and gains were "free money" to take risk with.
- This mental accounting can lead to irrational decisions like prematurely withdrawing original capital.
Overconfidence Bias Explained
- Overconfidence bias makes investors overestimate their ability after good returns.
- People give overly precise answers even on uncertain questions, illustrating this bias.
Anchoring Bias in Market Decisions
- Investors anchor on market highs like 52-week highs or expected returns, influencing decisions.
- Flexibility to withdraw anytime can become an anchor causing rash withdrawals during market downturns.