Bias

1. INTRODUCTION
TO BEHAVIORAL
BIASES
CHAPTER-3

2. Submitted by:
Avijeet Kumar Roy
ID: M22010203193
1st Batch, Sec B
MBA (Professional)
Department of Finance
Jagannath University
Submitted to:
Prof. Dr. Md. Sogir Hossain
Khandoker
Chairman
Department of Finance
Jagannath University

3. Behavioral biases
• Behavioral biases are systematic patterns of
deviation from rationality in decision-making. They
are cognitive and emotional shortcuts that lead
individuals to make irrational choices, often
resulting in suboptimal financial decisions.

4. How do behavioral biases influence financial
decisions?
• Behavioral biases can influence financial decisions in
various ways. For example, overconfidence bias can lead
individuals to overestimate their knowledge and
abilities, resulting in excessive risk-taking. Loss aversion
can cause people to hold onto losing investments for too
long, hoping for a recovery.

5. Common types of behavioral biases.
• Confirmation bias: The tendency to favor information that
supports existing beliefs while ignoring contradictory evidence.
• Anchoring bias: Relying too heavily on the first piece of
information encountered when making decisions.
• Herding behavior: Following the actions of the crowd, even if it
goes against rational judgment.
• Availability bias: Giving more weight to readily available
information rather than seeking out more comprehensive data.

6. How can one mitigate the impact of
behavioral biases in wealth management?
• Recognizing and understanding behavioral biases is the
first step towards mitigating their impact. Wealth
managers can help their clients by providing unbiased
advice, encouraging diversification, and setting clear
long-term goals. Additionally, developing a disciplined
investment strategy and periodically reviewing and
rebalancing the portfolio can help counteract the
influence of emotional decision-making