Behavioural finance can be categorized as macro or micro depending on whether the topic of study is the economy as a whole or the behaviour of individuals.
Biases can be categorized as based on faulty reasoning (cognitive errors) or those based on feelings and emotions (emotional biases). Cognitive biases can be more easily moderated than emotional biases.
Cognitive Cost
The effort involved in processing new information.
To moderate a bias is to recognize and attempt to reduce it from one’s decision making.
Cognitive Errors
- Belief Perseverance Biases: The tendency to cling to one’s previously held beliefs. Related to cognitive dissonance.
- Conservatism
- Confirmation
- Representativeness
- Illusion of Control
- Hindsight
- Processing Errors: illogical or irrational processing of information.
- Anchoring and adjustment
- Mental accounting
- Framing
- Availability