It’s no secret that investors have a tendency to "get in their own way” when it comes to making investment decisions. As we have written before, you may not be your own best financial planner. The idea that investors often make emotional or ill-informed decisions is not an attribute that is just widely-known and accepted—there is actually an entire field of research devoted to it.
This field of research is known as Behavioral Economics or Behavioral Finance, and people in the field study “inherent biases that plague individual investors.” These biases are often ones that are difficult for individual investors to come to terms with and overcome. Robert Stammers, the Director of Education for the CFA (Chartered Financial Analyst) Institute, frames the role of investor behavior on decision-making into three behavioral biases: overconfidence, familiarity, and anchoring.1 We will focus on the familiarity bias here.[+] Read More