- Behavioral finance biases can influence our judgment about how we spend our money and invest.
- The most common pitfalls include mental accounting errors, loss aversion, overconfidence, anchoring, and herd behavior.
- Understanding these biases can help you overcome them and make better financial decisions.
- Visit Business Insider’s Investing Reference library for more stories.
Imagine you find $100 on the street. Would you spend it on an expensive meal? Or would you invest it?
The answer lies with behavioral finance, which examines how our brain affects how we manage and invest money.
It may not come as a surprise, but most people would be likely to spend that windfall, even if they’re more prudent with their salary. That’s to say, they’d likely spend the $100 instead of investing it. Why is that?
What is behavioral bias in finance?
Behavioral finance is a field of study that focuses on psychological factors that influence