Common Behavioral Biases Among Investors: Have You Heard of the Tech Gender Issue? In this case, employers believe that male candidates are superior to female ones, thinking that women are not good at technology because they are women. Even one of the world's largest companies, Amazon, has faced this bias. (Learn more here: Amazon's machine learning experts discovered a big problem: their new recruitment engine did not like women - The Guardian.)

Regardless, gender bias is not new. Throughout history, when jobs are seen as more important or higher paid, women are squeezed out. Similarly, in our daily lives, we can notice multiple common biases. But what biases are there in reality?

According to Wikipedia, "A bias is a disproportionate weight in favor or against a thing, person, or group compared with another thing, person, or group, usually in a way that is unfair."

In other words, it is a tendency or preference that affects the balance of judgment. Bias leads to a tendency to lean in a certain direction, which often harms open-mindedness.

Investment Behavioral Biases:

Investors are also human beings, so they are subject to many biases that affect their investment decisions. Although controlling behavioral biases takes time, understanding what these biases are and how they work can help individuals make rational decisions when they are susceptible to these situations.

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In this article, we will discuss five common investment biases that every investor should know.

- Confirmation Bias- Gambler's Fallacy

- Consumer Regret

— Herd Mentality

- Winner's Curse

- Confirmation Bias

When an individual's thinking is anchored to a specific behavior, it subconsciously rejects evidence against it while confirming that which supports it. This is known as confirmation bias.

Psychologically, investors tend to gravitate towards information and knowledge about certain types of investments that they are familiar with. When considering the pros and cons of a particular investment, the buyer is likely to follow the principles he has always believed in.

For example: Investing in Bitcoin is dangerous and pointless. If this is the investor's preconceived notion, then he is highly unlikely to invest in Bitcoin in the future.

- Gambler's Fallacy

The gambler's fallacy is a testament to how the human mind often interprets the outcomes of future events based on its past events, even when the two are completely independent of each other. It is inspired by the "gambler's ruin," which stems from their probabilistic illusions when making decisions in casino games.Using a basic example involving a coin can well illustrate the gambler's fallacy. For future reference, let's assume that the two sides of the coin (heads and tails) have equal probabilities of landing on top.

Suppose a coin is tossed 10 times, and the result of each event is "heads." What would you bet on the next coin toss?

Now, if people bet on the outcome of the coin flip on the 11th try as "heads" based on witnessing past events, this can be considered a bias.

The context above merely implies a simple rule: The occurrence of independent events does not depend on past events. In this example, the 11th flip of the coin will result in a 50% chance for both heads and tails, associated with each of them.

- Consumer Regret

The regret after purchasing a product is referred to as buyer's remorse. Here, the buyer may regret having overpaid for the product or not actually needing the product at all.

Nevertheless, buying goods is not the only thing people can feel "buyer's" remorse about. Stock investors, like ordinary people, also experience regret after purchasing stocks.

"Was it a mistake to buy this stock?"

"Was my timing right?"

"Did I just buy a lemon stock?""Will the market crash?"

"What if I lose money?"

Usually, investors feel regret when making investment decisions that do not yield immediate results.

— Herd Mentality

An investor's instinct is the instinct of the crowd, which means that he/she seems to have no rational view of a certain investment, but is more likely to deviate from the flow of the majority, a phenomenon known as the "minority." "Herd mentality."

The term originates from the natural instinct of many sheep to walk in groups to avoid falling into dangerous traps.

Interestingly, you can also find a large number of investment communities following various herd mentalities to make various financial decisions, such as purchasing new properties or investing in the stock market. After seeing others profit from investments, our brains tell us not to think about it anymore.

- Winner's CurseBidders who sit in auctions and attempt to repeatedly bid on assets often get intimidated to continue bidding, even when it is not profitable for the bidder. It is apparent that in such cases, the last bidder will acquire the asset, thus earning the title of "winner." But has he really won? What do you think? The inference might be deeper than you estimate.

This scenario is evident in all places, including investments. In the stock market, you might occasionally encounter a narrative where people buy expensive stocks because they do not want to miss out on the opportunity. Here, they are ready to bid high prices to win that stock. However, purchasing overvalued stocks (just to win) is detrimental to investors in most cases. Another example of the winner's curse is bidding on expensive IPOs.

Summary of thoughts:

Most biases are pre-programmed by humans, so individuals may find it difficult to notice them. These biases can adversely affect your investment decisions and your ability to make profitable choices.

Regardless, understanding these biases can help you avoid any serious damage they may cause. Additionally, one good thing about these biases is - like any habit, you can change or overcome them through practice and effort.