Overcoming cognitive biases and mitigating emotional biases are key for sustainable trading
Trading and investment psychology as well as behavioral finance have evolved over the years, driven by advances in psychology, economics, and technology. Initially, the conversation amongst market participants, traders and financial theorists surrounded the idea of the Efficient Market Hypothesis (EMH), where it was assumed that individuals were rational beings and that the financial markets were efficient.1
Then, in the 1970s, Prospect Theory was introduced. This challenged the rationality assumption and highlighted the role of biases in decision making. Further along the timeline, in the 1990s, behavioral finance emerged. This was a recognition that investors, traders and individuals in general are prone to cognitive and emotional biases as well as heuristics that affect their investment decisions.23
No comments:
Post a Comment