Module 5 of 5 in Investing and portfolio management
Behaviour, biases and decisions
Loss aversion, confirmation bias, overconfidence, herding, recency bias, emotional decisions, and judging decisions separately from outcomes.
5 lessons in this module. Progress is saved in your browser as you go.
Investors with good plans still make poor decisions under pressure. This module explains the biases that research has documented most consistently, how they show up in real portfolio decisions, and practical habits that reduce their effect.
By the end of this module you should be able to
- Recognise loss aversion, confirmation bias, overconfidence, herding and recency bias in investment decisions.
- Describe how fear and greed affect decisions and use pre-commitment to limit the damage.
- Judge a decision by the information and reasoning behind it rather than by its outcome.
Lessons in order
Module test
10 questions, chosen at random from a bank of 34 questions and balanced across this module's learning goals and difficulty levels. Every question comes with an explanation. You need 80% to pass, and you can retake it as often as you like with a fresh set of questions.
This module builds on
- Investing compared with speculation: Biases matter most when they push investing towards speculation.
- Bull markets, bear markets, corrections and crashes: Bubbles and panics are extreme versions of the market cycles explained there.
- Probability and expected value: Judging decisions uses the idea of expected value explained there.