Behavioral Finance Glossary
The most important terms in behavioral finance
Behavioral Finance Glossary
This behavioral finance glossary is a helpful preparation guide to CFI’s behavioral finance course.
Anchoring bias
Relying on the first piece of information that’s encountered as a reference point (or anchor).
Confirmation bias
Our natural tendency is to listen to people who agree with us. It feels good to hear our own opinions reflected back to us.
CRT test
Cognitive reflection task test
Framing bias
Judging information by how it was presented rather than at face value. Changes in phrasing, or how the problem was “framed“, can cause investors to change their conclusion.
Herding bias
We are hard-wired to herd. Going against the crowd / non-conformity triggers fear in people.
Hindsight bias
Prevents us from recognizing our mistakes. We tend to believe that after something happened, we knew about it all along.
Illusion of control
More information leads people to believe they can influence the outcome of uncontrollable events.
Illusion of knowledge
The tendency to believe that the accuracy of our forecasts increases with more information.
Loss aversion
Investors hate losses between 2 and 2.5 times as much as they enjoy equivalent gains.
Narrative fallacy
Stories govern the way we think. We will abandon evidence in favor of a good story. Admired stocks often come with great stories and high prices.
Reflective reasoning
The logical approach to decision-making.
Reflexive reasoning
The emotional approach to decision making that is automatic, effortless, and the default option.
Representative bias
The judgment of events by how they appear, rather than by how likely they are.
Self-attribution bias
The tendency to attribute good outcomes to skill and bad outcomes to sheer luck.
Additional behavioral finance resources
This behavioral finance glossary is an excerpt from CFI’s behavioral finance course. To continue learning and advancing your career, these additional CFI resources will be helpful:
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