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Provide three categories of cognitive errors when making investment decisions. Expand on each category.
On Jun 27, 2024
Errors in reasoning are often called cognitive errors. They include such errors as: (1) biases, (2) framing effects, and (3) heuristics. These categories can be expanded further:
Biases: overconfidence, over-optimism, confirmation Bias.
Framing effects: loss aversion, house money.
Heuristics: the affect heuristic, the representativeness heuristic, representativeness and randomness, the gambler's fallacy.