Have you ever wondered how do we make decisions on the financial market? On the one hand, we would like to be considered reasonable, but the reality often looks completely different. The behavioral economy is focused on the mechanisms of such decisions.
Emotions have always been a part of investments. The perfect example is a bubble on the tulip market in the 17th century in Amsterdam, where astronomical amounts of money were paid for bulbs of specific tulip varieties (an equivalent of average real estate price). In 2017 we witnessed madness on cryptocurrency market when BTC/USD gained more than 1,000% and the niche market grew at a break-neck speed. Thus we can put it clear - markets change (tulip bulbs, cryptocurrencies, precious metals, spices, etc.), but the emotions and at the same time investors’ behaviors stay the same over time. We make many mistakes as investors; some of them result directly from our psychological conditions, and some are connected with the lack of knowledge or improper preparation for investments. I will present below four common investment mistakes and I will show you the reason behind them and the ways to avoid them.