Cognitive Bias in Investing

Cognitive bias in investing refers to the systematic mental errors that can affect investors' decisions. These biases arise from our innate tendencies to interpret information based on emotions, personal experiences, or preconceived notions rather than objective analysis. Common examples include overconfidence, which leads investors to underestimate risks, and herd behavior, where individuals follow group trends instead of their own research. Recognizing these biases is crucial, as they can distort judgment, impact portfolio choices, and ultimately affect financial outcomes. Being aware of cognitive biases helps investors make more rational, informed decisions.