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When people rely on representativeness to make judgments, they are likely to judge wrongly because the fact that something is more representative does not actually make it more likely. [4] The representativeness heuristic is simply described as assessing similarity of objects and organizing them based around the category prototype (e.g., like ...
Loss aversion was also used to support the status quo bias in 1988, [9] and the equity premium puzzle in 1995. [10] In the 2000s, behavioural finance was an area with frequent application of this theory, [11] [12] including on asset prices and individual stock returns. [13] [14]
The proponents of the traditional theories believe that "investors should just own the entire market rather than attempting to outperform the market". Behavioral finance has emerged as an alternative to these theories of traditional finance and the behavioral aspects of psychology and sociology are integral catalysts within this field of study ...
Behavioral economists attribute the imperfections in financial markets to a combination of cognitive biases such as overconfidence, overreaction, representative bias, information bias, and various other predictable human errors in reasoning and information processing.
Trait ascription bias, the tendency for people to view themselves as relatively variable in terms of personality, behavior, and mood while viewing others as much more predictable. Third-person effect , a tendency to believe that mass-communicated media messages have a greater effect on others than on themselves.
Reference dependence is a central principle in prospect theory and behavioral economics generally. It holds that people evaluate outcomes and express preferences relative to an existing reference point, or status quo. It is related to loss aversion and the endowment effect. [1] [2]
Amos Nathan Tversky (Hebrew: עמוס טברסקי; March 16, 1937 – June 2, 1996) was an Israeli cognitive and mathematical psychologist and a key figure in the discovery of systematic human cognitive bias and handling of risk. Much of his early work concerned the foundations of measurement.
Amos Tversky and Daniel Kahneman first proposed that the gambler's fallacy is a cognitive bias produced by a psychological heuristic called the representativeness heuristic, which states that people evaluate the probability of a certain event by assessing how similar it is to events they have experienced before, and how similar the events ...