Title: Understanding Investor Behavior
Headings: Understanding Investor Behavior
Understanding Investor Behavior
Key Takeaways
Questioning Rational Actor Theory
The Truth About Investor Behavior
Fear of Regret
Mental Accounting Behaviors
Prospect Theory and Loss-Aversion
Anchoring Behaviors
Over- and Under-Reacting
Investor Overconfidence
Social Factors
Is Irrational Behavior an Anomaly or the Norm?
Frequently Asked Questions
Do people behave like rational economic actors?
Why do economic actors behave irrationally?
What does this mean for investors?
The Bottom Line
Article Sources

Content: The loss-aversion theory points to another reason why investors might choose to hold their losers and sell their winners: they may believe that today's losers may soon outperform today's winners. Investors often make the mistake of chasing market action by investing in stocks or funds which garner the most attention. Research shows that money flows into high-performance mutual funds more rapidly than money flows out from funds that are underperforming. Anchoring Behaviors
In the absence of better or new information, investors often assume that the market price is the correct price. People tend to place too much credence in recent market views, opinions and events, and mistakenly extrapolate recent trends that differ from historical, long-term averages and probabilities. In bull markets, investment decisions are often influenced by price anchors, which are prices deemed significant because of their closeness to recent prices. This ancho