Imagine you have just won €50,000.
But… you have the option of receiving your €50,000 windfall in 12 months’ time, or receiving a lesser amount today.
Would you accept the lower amount today, or would you wait a full year to be able to receive the full amount?
There is no right answer. How you respond is a measure of one of your behavioural biases when it comes to money.
We have previously discussed the momentum investor bias here, but there are several human responses to money and investments that can be considered biases.
The example above relates to what is called a loss aversion bias. That is that an investor might take actions to minimise a loss rather than to make a gain.
5 other biases include:
Information bias– when we use data to influence our decision even when it may not be relevant.
Recency bias– that we give more weight to information recently received
Hindsight bias– where we perceive events that happened in the past as having been predicted (understating the role of luck) and determine future events and unpredictable.
Locality bias– where we value investments closer to home than those in other markets
Reference point or anchoring bias- where we value an asset or investment in relation to something else, rather than independently.
There are several more biases and there is real value in being aware of your biases so you know how you might respond in a given situation, such as when markets drop like they did in March this year. If you know your responses, you might be able to make better decisions.
This is such an important topic that Black Swan Capital is hosting a Webinar exclusively for its network with guest speaker and behavioural finance expert, Neil Bage.
When: Thursday 14 May 2020 at 11.00.
Click here to register. We only have 100 places so make sure you register now.
What we will cover:
What’s going on in the world today?
Some of the behaviours we should be aware of at the moment
The role of 24 hour rolling news in our decision making
The role of professional advice during times like this
Practical tips to help people through trying times
About our guest speaker:
Neil Bage is the Director of Behavioural Insight at Be-IQ. He is a specialist on the sub-conscious behaviours that drive our decisions, and is renowned for bridging complex scientific theory with real-world understanding, especially in relation to decisions that involve money. An energetic, powerful, and highly engaging speaker, Neil’s talks are a mixture of human evolution, psychology, biology, and compelling storytelling, all of which combine to reveal how people make important decisions that will impact their financial health and wellbeing. Neil also features frequently as a podcast guest, conference panel member, and is seen as a go-to expert in relation to human behaviour by consumer publications.