I stumbled across this interesting and exhaustive list of common cognitive distortions. It should come as no surprise that quite a few of these are applicable to investors.

Here are a few that I found relevant:

3. Negative predictions: Overestimating the likelihood that a market or economic report will have a negative outcome.

7. Negatively biased recall: Remembering negatives while ignoring positives.

19. Basing future decisions on “sunk costs.” e.g., investing more money in a business that is losing money because you’ve invested so much already.

20. Delusions: Holding a fixed, false belief despite overwhelming evidence to the contrary.

23. The Halo Effect: Perceiving qualities to one company due to its association with another (ie, JC Penney’s CEO was Apple’s former head of Retail).

27. Overgeneralizing Generalizing a belief that may have validity in some situations to every situation.

32. Overvaluing things because they’re yours.: e.g., perceiving your portfolio holdings as more attractive because they are yours. Or, overestimating the value of your home when you put it on the market for sale.33. Failure to consider alternative explanations: Coming up with one explanation for why something has happened/happens and failing to consider alternative, more likely explanations.

34. The Self-Serving Bias The self-serving bias is people’s tendency to attribute positive events to their own skills but attribute negative events to external factors. (See these Tips for overcoming the self-serving bias.)

36. Failure to consider opportunity cost: There is a cost to every holding you have, as that capital could be deployed in productive uses.

39. “You don’t know what you don’t know.”  Having a 3rd party provide an outsiders perspective can help you avoid being blindsided by whats outside of your understanding.

41. The belief that more information and analysis will lead to problem solving insight:  Excess information often leads to excess confidence and poor decision making.

43. The Peak-End Rule: The tendency to most strongly remember (1) how you felt at the end of a trade, or (2) how you felt at the moment of peak emotional intensity during the trade. Biased memories can lead to biased future investment decision making.

44. The tendency to prefer familiar things: Familiarity breeds liking. Think about why people tend towards certain stocks or sectors or assets — its often the familiarity as opposed to something intrinsic about those holdings.

47. Positively biased predictions: Once you commit capital to a given investment, you can easily allow your hopes and desires for it succeed to interfere with your ability to objectively evaluate it.

49. Repeating the same behavior and expecting different results (or thinking that doubling-down on a failed strategy will start to produce positive results).  What more does anyone need to say about doubling down on bad trades?

Do you engage in any of these Cognitive Distortions ?
50 Common Cognitive Distortions
By Alice Boyes, Ph.D.
Psychology Today Jan 17 2013


Category: Markets, Psychology, Rules, Trading

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

6 Responses to “50 Cognitive Distortions”

  1. VennData says:

    The games voters play in their minds is a good example:

    ​The GOP is trying to fend off the Obama “dare”


    ​The way they do this is various members of the GOP Media Machine toss out ways to spin this. A tired old one is “Obama is using the death of these children for political gain”


    and even more craven “Obama is using this for political gain to make the GOP look bad.” ​


    Krauthhammer raised the bar by saying it was a way for “Obama to make money”


    You wonder why the GOP voters are off their rockers with incendiary emotional confusion?

    Their media outlets pollute the logical thought process long since primed in their supporters that will find the least bitter way to make any situation look like the Democrats are the problem

    The GOP Media Machine tosses out these experiments (some don’t work


    …some take off)


    …with the goal of getting people to ignore reality with a tight little meme. Anything to make Obama, Clinton, the Democrats look bad, justify the GOP etc…

    And even if they don’t “work” you’re going to get some percentage of them thinking that this is the truth, and of course for some, percentage it does “work.” And that is why you have these conspiracy-believing lunatics supporting the GOP even if they do things like fight the UN handicapped rights principles that we have already codified into law etc… etc…

    Unlimited money to test unlimited nuttiness on the American voter.

    That, as I have said, is why the GOP is the problem in the country.

    Cutting spending isn’t the problem, lowering taxes isn’t the problem, it’s the GOP approach, testing their rhetoric and then sticking to a long list of marketing positions that eventually become unglued from the real world through facts, in turn, un-hinging their supporters form rationality.

    And they are mostly all in cash, hoping for a stock market retreat of epic size, which could only come from a prolonged recession, because they know they have to be right.

  2. S Brennan says:

    19. Has done a lot of damage to me…

  3. trafficengineer says:

    They are classified under biases at Wikipedia (more comprehensive list).

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