Psychology has proven to be key in recent years to be able to analyze the behavior that investors can have in different market contexts. There are several behavioral biases that influence investment decisions and are included in the science known as Behavioral finance, which was so popularized by the recently deceased Nobel Prize winner in Economics, Daniel Kahneman.
These biases also influence the personality of the investor in one way or another depending on the risk profile that one has, so it is advisable for advisors to be attentive to them when establishing their recommended portfolios. This was stated by Paz Gomez Ferrer, expert in Personality Psychology and Financial Psychology, during the VIII Cobas AM Investor Conference, held a few weeks ago in Madrid.
This professional has carried out research together with Natalia Cassinello, professor at the Pontifical University of Comillas, analyzing the downloads that investors have made of Brainvestor, the Cobas AM app that offers its users self-knowledge tools to delve deeper into their financial psychology. . The study with the results will be presented in the coming weeks but it is now possible to advance which biases are most likely to occur taking into account the three typical investor profiles: conservative, aggressive and moderate. “Analyzing what variables or biases could be key in the profile of the investor from most aggressive to most conservative, we found that this profile is explained by two variables and two biases: the feeling about financial loss, decision making, the bias of loss aversion and overconfidence bias,” the authors say.
Conservative profile
According to Gómez Ferrer, four are the most common biases in investment profiles with greater risk aversion: loss aversion bias, anchoring bias, sunk cost bias, and hyperbolic discounting bias. Perhaps the most unknown are the last two.
The sunk cost bias is allowing yourself to be influenced in your decision making by what you have already invested in an asset instead of taking into account the future forecast. It is the tendency we have to continue carrying out an activity in which we have invested time, money and effort even though it may no longer pay off in the future.
Hyperbolic discounting refers to the predisposition that an investor has towards choosing an immediate reward, even if it is smaller, instead of waiting longer to achieve greater rewards. It therefore influences the assumed investment term.
Moderate profile
Here are three biases that may appear most frequently in these profiles. Specific, authority bias, affinity bias and carryover bias. The CNMV defines the first of them as “a tendency to overestimate the opinions of certain people for the mere fact of being who they are and without subjecting them to prior prosecution.”
The next two, affinity and drag, come to underline the danger of the investor being carried away by the decisions of someone similar to him, even if they are different investment profiles, or following the crowd when investing, ignoring any aspect. critical.
Aggressive profile
Finally, and according to the study carried out through Brainvestor, in the most aggressive investment profiles, advisors must be especially attentive to three very common biases: confirmation bias, selective perception bias and halo effect bias. The first two are very interrelated since they imply a tendency to take into account only that information that reaffirms the idea that the investor himself already has preconceived towards an asset.
As for the halo effect bias, it is getting carried away by first impressions and not going deeper, which can lead to making unwise decisions, especially taking into account the importance of in-depth analysis in making investment decisions.
