At the Morningstar Investment Conference 2018 that was held in Mumbai last week, Steve Wendal, head of behavioural sciences at Morningstar, gave a presentation on behavioural biases faced by investors. Behavioural biases refer to habitual reactions that you may have to various situations. According to Wendal, some of the most common behavioural patterns of people in context to everyday choices perhaps don’t work well when applied to investing. Here are three most common biases Wendal cited.
Following the herd
In many situations agreeing with the majority is what can lead to the most effective choice. For example, in a shop with discount counters, the counter with the bigger crowd is likely to be the one with a greater discount or from among two restaurants the one with a bigger crowd is likely to be the one with tastier food. However, this behavioural bias is unlikely to work each time you make a financial decision.
