Video courses › Planning: goals, retirement, common mistakes › Lesson 4

The most common behavioural mistakes

Loss aversion, herd behaviour, overconfidence: how the mind works when faced with money and which habits help.

Video lesson in preparation (AI-generated presenter). Full text below.

Lesson text

Behavioural finance studies how people really make economic decisions, which is often different from how they think they make them. The first phenomenon is loss aversion: a loss hurts more than a gain of the same size pleases. The typical consequence is selling in a hurry when prices fall, to stop the pain, turning a temporary decline into a permanent loss.

The second is herd behaviour: doing what others do. When everyone is talking about something that is rising, fear of missing out pushes people to buy, often when prices are already high. When everyone sells, fear pushes people to sell. The result is buying dear and selling cheap, the opposite of what one would want.

The third is overconfidence: believing you know more than others or can pick the right moment. Studies show that those who buy and sell very often tend to obtain worse results, partly because of the cost of each transaction. Added to these are the habit of seeking only news that confirms one's own view and the tendency to give too much weight to the most recent events.

Nobody is immune, and knowing these mechanisms exist is not enough to remove them. Some habits help: deciding the rules beforehand, with a cool head, and writing them down; automating contributions, so as not to decide every time; checking performance less often; distrusting urgency, your own and above all that imposed by others. A serious financial decision can always wait a day.

In three points

• Losses weigh more than gains: that is why people tend to sell at the worst moments.
• Following the crowd and believing you can time the market often lead to buying dear and selling cheap.
• Rules decided in advance, automatic contributions and distrust of urgency are the simplest defences.

Educational and informational content only. It is not personalised financial, investment or tax advice. All investments involve risks, including the possible loss of invested capital.

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