Common Investor Biases

The concept of behavioural finance helps us recognize our natural biases that lead us to making illogical and often irrational decisions when it comes to investments and finances. A prime example of this is the concept of prospect theory, which is the idea that as humans, our emotional response to perceived losses is different than to that of perceived gains. According to prospect theory, losses for an investor feel twice as painful as gains feel good. Some investors worry more about the marginal percentage change in their wealth than they do about the amount of their wealth. This thought process is backwards and can cause investors to fixate on the wrong issues.  

When Behavioral Biases turn away from the simple truth; what do you think happens to financial decision making?

Long-term financial planning is extremely important for lifetime financial security, but it is also exceptionally difficult for most investors. By improving decision making among clients, financial advisors can improve lifetime financial security