Behavioral Biases

Predicting Behavioral Biases with Behavioral Finance:

The reality is, all of us aren’t a perfect human being, we have a set of biases that drive our decision-making that can lead to less than optimal outcomes. Based on our research, we focus on 16 biases and recommend that advisors and investors understand their top biases and how they form their decision-making patterns.

Financial Behavioral Biases are deep-rooted patterns of investor behaviors which, if not managed, can cause a client to make irrational decisions on a regular basis. A Vanguard study found that financial advisors bring 150 bps of value by coaching investor clients to manage these behaviors.

To make this easy for financial advisors, Financial DNA measures each of these behavioral biases independently and displays them in the Behavioral Management Guide report. Financial advisors should discuss the strongest biases with the client and agree on a strategy for managing them.

Behavioral Biases on iPad screen

The 16-Behavioral Biases Measured with Financial DNA:

  1. Overconfidence
  2. Loss aversion
  3. Optimism bias
  4. Newness bias
  5. Fear of regret
  6. Benchmark focus
  7. Pattern bias
  8. Controlling
  9. Herd follower
  10. Mental accounting
  11. Consolidated view
  12. Over trading
  13. Disposition effect
  14. Status quo bias
  15. Risk aversion
  16. Instinctive

Explore the Behavioral Bias video series: