What is Behavioral Finance? – Avoid These Financial Mistakes in 2019

What is Behavioral Finance? – Avoid These Financial Mistakes in 2019

Investing is a logical endeavor and
human beings with our highly evolved prefrontal cortex are very well suited
to making great financial decisions Right? Ah, no it’s not how it is at all in
reality when it comes to financial decisions
we’re actually wired to do it all wrong in this video I talk about behavioral
finance and three investing mistakes that are so easy to make but that you
need to avoid coming up. Hey I’m Dr. Brad Klontz on this channel we help you transform your relationship with money master the psychology of wealth and live
a life of abundance so if you’re new here please subscribe and click the bell
see you don’t miss anything so what is behavioral finance behavioral finance is
the application of cognitive psychology to finance which looks at how we are
hard-wired to think and solve problems studies have repeatedly shown that the
human brain which was designed for survival in a world of large predators
and competition for food is quite impaired when it comes to making good
rational financial decisions for this reason we’ve seen market bubbles and
crashes throughout all of recorded history from the tulip mania which swept
Holland in the 1600s to the tech bubble to the housing bubble of 2008 we just
keep doing the same crazy stuff when it comes to money so I’m gonna break down
three investing mistakes you are going to make unless you stop following your
gut and you start second-guessing yourself warning if you have a fragile
ego best to just hop off this video right now because I’m about to serve you
up with some harsh truths stuff your friends are too afraid to tell you it’s
about to get kind of nasty. Mistake number one: overconfidence bias. So let’s
get real you think way too highly of yourself sorry someone had to tell you
you have way too much faith in your intuition your judgment and your
cognitive prowess this makes you prone to taking too much risk and you’re
embarrassingly sure of your conclusions so guess who’s better at investing men
or women cancer women studies show that they’re
better on average by about 1% why because they aren’t as cocky and men end
up trading more often which pummels their returns so a good dose of
self-doubt will really help you become a better investor and not quite as
annoying. Mistake number two: a narrow frame of reference. So did you start
investing around 2009 yeah you’ve done pretty well of course you have a monkey
throwing darts could have picked a winning portfolio in the past decade a
decade that saw the biggest stock market bull run we’ve seen in history so calm
down genius investing is for the long haul so whether you’re getting hyped up
about your recent success or you’re terrified about a big drop making
emotional decisions based on a narrow frame of reference is pure poison for
your portfolio so get some perspective Mistake number three: anchoring bias. Oh
man this is a tough one we are way too influenced by the price we bought
something for the price of a stock the price of a house whatever we get stuck
to it it’s like a mental anchor the problem is is that mental anchor can
drag us down to the bottom of the ocean when it comes to markets whatever number
we have in our head is meaningless it actually has nothing to do with the
actual market value of that thing so how can this hurt us it leads to anchoring
statements of pure destruction when it goes back up to where it should be
that’s when I’ll sell I have seen people ride a bad investment maybe you have all
the way down to zero being weighed down by this mental anchor don’t let this
happen to you your investment is worth exactly what the market says it’s worth
no more no less so don’t make any decisions based on your fantasy number
in your head there so are you alright are you okay I didn’t mean to hurt your
feelings but it’s so important for you to not trust your instincts around money
we’re all hardwired to do it all wrong so when you face a financial decision
make sure to take a step back seek some outside advice and not give in to your
impulses special thanks to the Heider College of Business at Creighton University for helping sponsor this
channel if you like this video and you want to see more like it please
subscribe and make sure to check out the video description below for
and resources I’ll see you next time


  1. lifewithalexis says:


  2. Confidence Coaching with Gwun says:

    Great tips, thank you, looking forward to more!

  3. Younger Every Day says:

    Great tips!

  4. Dr. Brad Klontz says:

    Behavioral finance is quite fascinating but most lectures on it are a bit dry. I tried to make this one both educational and entertaining. How did I do? You can give it to me straight. I can take it. Thanks for watching!

  5. Slow Fortune says:

    Great video. I'm a big fan of behavioural finance since I discovered Dan Ariely, Daniel Kahneman and Amos Tversky. I love how so many intelligent people make the same financial mistakes because they don't understand their cognitive biases. Found you from the FinCon YouTube list. Love your channel.

  6. Augie Byllott says:

    You totally nailed it. We can sell ourselves on anything, get stuck on what it cost rather than what it's really worth and have difficulty letting go – failure to take profits or dump losers. Thanks for the dose of reality. You're right, it isn't for the thin-skinned!

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