Behavioural Biases
Over the last few months we’ve looked closely at all the different ways our brains try to help us get through life, but end up stepping on our toes when it comes to investment. The purpose of this series has been to show you that while you can’t avoid these quirks (after all, they’ve developed over millions of years in the human psyche) you can at least be informed and spot them at work.
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This summer we saw some amazing performances at Glastonbury, but along with the big names, part of the beauty of a music festival is discovering the bands you’ve never heard of. While ‘The sunk cost fallacy’ might sound like an exciting new musical act, or maybe an album title, it’s actually a really dangerous and potentially very expensive behavioural bias.
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‘You’re only as good as your last performance’… not strictly true. Even if you fluffed whatever you do for a living on your last outing, that’s no reason to use it as a yardstick for your ability. Equally, if you smashed it, but had a run of average performances before that, your latest experience isn’t necessarily the best predictor of future performance.
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