I Never Thought Of One 's Personal Psychology Essay

1086 Words Mar 3rd, 2016 null Page
I never thought of one’s personal psychology would have such a deep impact on making investment decisions. I believed that people with a high level of knowledge and sufficient experience would always make rational decisions and predict future tendency appropriately. Almost everything changed after taking the Behavioural Finance lecture. For example, traditional finance assumptions tell us that people are risk averse. People’s behaviors should be consistent with their level of risk tolerance. However, in the real word, these assumptions are violated due to psychological biases. I was delighted to know how emotions and cognitive biases affect financial decisions, corporations, and the financial markets.

I am always thinking myself as quite a risk averse person. But he results of the tutorial tests show that I am a risk-taking person with a high-risk tolerance which is contrary to my expectation. As the lecture carrying on, I know more about different kind of psychological biases and know more about myself. I clearly feel that these problems also affect my behaviour unconsciously. For example, it is interesting to find that our risk preference will vary in different situations. Generally, people prefer less risk with gain while more risk with loss. However, things will totally a reversal in the situation that there is a big payoff under low probability. In that case, people prefer more risk with gain while less risk with loss.

Sometimes, I can be overconfident. It is…

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