Behavioral Finance

How availability bias, recency bias, and self-attribution distort investment probability estimates and lead to systematic portfolio errors.

Five emotional biases drive portfolio inertia: status quo bias, the endowment effect, regret aversion, self-control bias, and affinity bias. Learn how these biases cause investors to under-save, under-rebalance, and hold suboptimal positions—and how to overcome them.

Learn how anchoring bias and framing effects distort investment decisions. Understand anchor formation, insufficient adjustment, and advisor correction techniques based on Pompian framework.

Loss aversion is the most quantitatively documented behavioral bias in finance. Learn about the 2:1 ratio, prospect theory, myopic loss aversion, and how advisors detect and correct this bias in portfolios.

Learn how to build portfolios that account for investor behavioral biases using Pompian’s best practical allocation framework, the moderate-vs-adapt decision rule, and bias-aware portfolio construction steps.

The illusion of control, hindsight bias, and outcome bias form a self-reinforcing loop that distorts investor decision-making. Learn how these cognitive biases affect your portfolio and strategies to correct them.

Mental accounting bias is the tendency to treat money differently based on its source, intended use, or account label—violating economic fungibility. Learn about bucket investing, the house money effect, goals-based investing, and advisor detection strategies.

Overconfidence bias causes investors to trade excessively, hold concentrated portfolios, and underestimate risk. Learn the three types — miscalibration, better-than-average effect, and illusion of knowledge — plus the Barber-Odean evidence showing a 7.5 percentage point return gap.

Belief perseverance bias is a family of cognitive biases causing investors to cling to prior beliefs despite contradictory evidence. Covers cognitive dissonance, conservatism, confirmation bias, and representativeness heuristic with research citations, case studies, and mitigation strategies.

The cognitive vs emotional bias classification framework explains why different investor biases require different correction strategies.