Behavioral Finance

Scope and purpose of the article
The author enumerates 12 human behaviors and identifies how they negatively influence
investors decisions. From the abstract, negative reporting and market volatility are identified
as an area of concern, both of which lead to emotional reactions by investors. Profit investing
is identified as being grounded in rules, disciple and devoid of emotional distraction. The
author advocates for the viewing of investments in terms of long-term trend, riskiness and
volatility of assets.
KEY QUESTION BEING ADDRESSED BY THE AUTHOR
How does human behavior impact investing?
SYNTHESIS OF THE ARTICLE
The writer enumerates 12 human behaviors leading to biases regarding investing. The
identified behaviors are further elaborated using numerical examples and analogies. The
human behaviors identified comprise; overconfidence, illusion of knowledge, fear of regret,
mental accounting, reference point, familiarity, considering the past, cognitive dissonance,
house money effect, the snake bite effect and endowment effect. The author advocates for a
discipled and reasonable approach. Further, knowing the biases beforehand aids mitigating
against risk.
The main inferences in this article are;
i. Taking cognizance of human behavior, and inherent biases can help investors
mitigate risk and avoid investing pitfalls.
ii. Profit investing is an arduous task bound by rules, and runs counter to emotions.

A summary of the human behaviors is provided as follows; overconfidence is described as a bias
that results from accidental success and is exacerbated by online trading. High returns in the
Dotcom era led many investors to believe they had an innate ability in selection of investment
options leading to overconfidence on their part and the failure to account for inherent risk in.

METHODOLOGY APPLIED IN THE STUDY
The author uses a narrative approach to determine is behavioral finance is impacting the way
investors look at investing. The use of analogies and examples work well to win investors into
evaluating their own past decisions based on circumstances identified in the examples. The
numerical examples are both relatable to investors and objective. For instance, calculation of
capital gains tax. The author organizes the articles in a sequential manner, with weekly thematic
topics that are easy to follow and reference.
ASSUMPTIONS MADE BY THE AUTHOR

4
The author assumes behavioral finance is synonymous with human behavior based on the title of
the article.
SIGNIFICANCE OF THE STUDY
The study identifies that both external factors, for instance; negative reporting and market
volatility and individual investor factors (behaviors) affect investments. Further, it is not possible
to rid one of risk rather, investors can only mitigate against risk. In doing so, the study identifies
that human behavior can have detrimental effect on investing.
The study is significant to investors by depicting how typical human behavior can be adverse to
investment decisions. Human biases are identified as having the potential to make investors
make decisions that may seem right but are actually irrational. Identification of potential pitfalls
serves as a mitigating tool in investment.
The study identifies that profit investment relies on rules and a balanced approach. The study
advocates for viewing subsets of investments as part of a bigger portfolio (big picture view)
rather than isolated assets.

REFERENCES
Wright, R. A. (n.d.). Behavioral Finance: is it impacting the way you look at
investing? Advantage Investing,Inc.