How to Deal with the Greed and Fear Within You in Investing
By examining behavioral economics and investment psychology biases, understand loss aversion and the disposition effect Use Kahneman's theory to reduce emotional traps and start trading more calmly
In investing, one’s own emotions often play a bigger role than the market itself. The tendency to cling to losing stocks until the very end and to want to sell winning stocks too quickly is explained in behavioral economics by loss aversion and the disposition effect.
This article looks at representative psychological biases that appear in stock investing and examines why the same person makes completely different choices when the market rises and when it falls. It also explains, based on Daniel Kahneman’s theory, that reason and reflection should be consciously activated more than intuitive judgment.
The key is not to eliminate emotions, but to build the habit of checking, before making an important decision, whether ‘this judgment is a calm analysis or an excuse created by emotion.’ The article emphasizes that selfawareness to uphold one’s investment principles is just as important as establishing them.