Tuesday, January 16, 2007

Paralysis by Analysis

I love this: Paralysis by Analysis!! This is one of the emotional traps of Investing and has been pointed out in the great book The Bogleheads' Guide to Investing. credit for the post goes to FMF who reviews the book in his blog.

The authors add this commentary on this issue to wrap it up:

Investing is the one area where acting on emotions is likely to lead you down the path to financial ruin. Playing your hunches, blindly following the crowd, acting on a hot tip, trying to make a big killing, or falling prey to any of the other emotionally based investment decisions described in this chapter will almost always leave you poorer. Understanding behavioral finance will better enable you to deal with your emotions and make better investment decisions.

Other Emotional traps that is mentioned is as under:
  • Recency bias
  • Overconfidence
  • Loss aversion
  • Paralysis by analysis
  • The endowment effect
  • Mental accounting
  • Anchoring
  • Financial negligence

But "Paralysis by Analysis" takes the cake!!

Visit Amazon for amazing books like that.

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