Mind Games Video Series
Behavioral Finance Presented by Kevin Theissen
Perception of Loss
When we think about our experiences with loss, we seldom ask ourselves: “what type of loss is this?” – temporary or permanent.
The most common type of loss when investing is a temporary loss whether it’s a few days or several years.
Illusion of Average
The average return of your portfolio is 7.2% – how do you visualize that? Because the brain thinks linearly. We’re likely to visualize this as an upward sloping line rather than a stock market of constantly fluctuating values.
Drivers of Emotions
In our brain we find the amygdala. Its primary goal is survival. When faced with uncertainty and fear its core message is to get to safety. Neuroscientists have found the amygdala can be activated when we’re experiencing financial loss.
The media uses headlines to get our attention. To do this they create headlines to elicit emotions. This is especially powerful with fear or what the future will hold.