| Cognitive error | A bias stemming from faulty reasoning or analysis. Can be corrected through education and awareness. Includes belief perseverance and information-processing errors. |
| Emotional bias | A bias driven by feelings or impulses rather than analysis. Difficult to correct; typically must be accommodated in the portfolio. |
| Belief perseverance | A category of cognitive errors where individuals cling to prior beliefs despite new contradictory evidence. Includes conservatism, confirmation, representativeness, illusion of control, and hindsight. |
| Conservatism bias | Maintaining prior beliefs by insufficiently updating them when new information arrives. Results in slow reaction to new data. |
| Confirmation bias | Seeking, interpreting, and remembering information that confirms pre-existing beliefs while ignoring contradictory evidence. |
| Representativeness bias | Classifying new information based on past experience or stereotypes, often ignoring base rates or sample sizes. |
| Base-rate neglect | A form of representativeness where the base probability of an event is ignored in favor of specific but potentially irrelevant information. |
| Sample-size neglect | A form of representativeness where conclusions are drawn from a sample that is too small to be statistically meaningful. |
| Illusion of control | Overestimating one’s ability to control or influence outcomes, leading to excessive trading or inadequate diversification. |
| Hindsight bias | Believing, after the fact, that a past event was predictable or obvious (“I knew it all along”), which distorts future risk assessment. |
| Anchoring and adjustment | Fixating on an initial piece of information (the anchor) and insufficiently adjusting away from it when making estimates. |
| Mental accounting | Treating money differently depending on its source, location, or intended use, rather than viewing wealth as fungible. Leads to sub-optimal portfolio construction. |
| Framing bias | Making different decisions depending on how a problem or question is presented (e.g., as a gain vs a loss), even when the underlying economics are identical. |
| Availability bias | Overweighting information that is easily recalled (recent, vivid, or emotionally charged) when making probability estimates. |
| Loss aversion | Feeling the pain of a loss more intensely than the pleasure of an equivalent gain. Leads to risk-averse behavior in gains and risk-seeking behavior in losses. |
| Disposition effect | A manifestation of loss aversion: selling winners too early (to lock in gains) and holding losers too long (to avoid realizing losses). |
| Overconfidence bias | Overestimating one’s knowledge, skill, or the precision of one’s forecasts. Leads to excessive trading, under-diversification, and underestimation of risk. |
| Self-control bias | Failing to act in one’s long-term interest due to a lack of self-discipline, often favoring immediate consumption over future savings. |
| Status quo bias | Preferring the current state of affairs and resisting change, even when change would improve outcomes. Leads to failure to rebalance or update allocations. |
| Endowment bias | Valuing an asset more highly simply because one owns it, leading to reluctance to sell (especially inherited or long-held positions). |
| Regret aversion | Avoiding decisions that might produce regret, leading to inaction (errors of omission) or herding behavior (following the crowd reduces individual blame). |