Behaviorism

Behaviorism...

  • Is a subfield of psychology 

  • Focused on how emotions and biases can affect decisions

  • States that there are errors in decision-making

  • States that people are NOT rational

  • Explains why investment bubbles, volatility and drastic movements in the stock market occur

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Why Should I Care?

  • Psychological biases may cause you to make irrational decisions

  • By knowing these traps, you may be able to avoid them

  • In order to make the best financial decisions, there has to be rationality involved

  • Knowing how to overcome these biases can prompt the making of better investing and financial decisions

ESSENTIAL READS
These are our must-read articles that we HIGHLY recommend will help you develop a strong foundation of behaviorism
Modern Portfolio Theory (MPT) is a constructed theory that calculates one's maximum returns given their amount of risk they are willing to take.
 
This theory is key to Portfolio Shepherd.
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Behavioral Finance is one of the key categories that we offer.
 
This new field analyzes how psychology affects decisions and subsequently, outcomes. 
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When calculating returns according to the Modern Portfolio Theory, the understanding of the relationship between risk and return is critical
 
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The Fear of Missing Out (FOMO) is something we all experience due to our fears of being regretful. 
 
But why is it so detrimental?
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The Efficient Market Hypothesis (EMH) is a theory that states people are rational and that markets are efficient.
 
But are all people rational and are all markets efficient?
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Herding occurs when an individual, rather than using their own rational, follows a large group of people under the underlying assumption that others must be right. 
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