What is behavioral bias in investment?

Behavioral bias in investment encompasses the psychological factors that can lead investors to make irrational decisions, diverging from what might be considered a logical or optimal choice based on available information. This concept is rooted in the understanding that human emotions and cognitive differences can significantly impact investment behavior, often resulting in decisions driven by fear, overconfidence, herd mentality, or loss aversion rather than rational analysis.

Investors may, for example, overweight recent experiences or be influenced by their own emotions, leading them to buy high during market euphoria or sell low during panic. These biases can hinder their ability to analyze investments based purely on fundamentals or market conditions, which is why understanding such biases is critical for improving investment decision-making.

Other choices relate to different concepts in the investment realm. While market trends based on media reports can reflect public sentiment or influence markets, they do not encapsulate behavioral bias directly. The influence of peer performance on individual investors might signify social or contextual factors in investment behavior, again not specifically capturing the essence of behavioral bias as driven by personal psychological tendencies. Technical indicators guiding investment choices connect more to systematic analysis than to the inherent psychological biases that influence decisions.