The Investment Scientist

Posts Tagged ‘bandwagon effect

This list is taken from an Irish Times article on behavioral economics.

1. LOSS AVERSION

People are more motivated by fear of a loss than hope of a gain, hence are more likely to seek to avoid a penalty than seek to gain bonus, even if both amount to the same thing.

2. ILLUSION OF CONTROL

For example, people feel an illusion of control when they’re allowed pick their own lottery numbers, even though they are no more likely to win by being given this choice.

3. DENOMINATION EFFECT

The tendency to spend more money when it’s denominated in small amounts (like coins) as opposed to large amounts (like large notes).

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Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC.

Twitter: @mzhuang

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