To Err Is to Be Human. To Make a Behavioral Error Is to Be a Human Investor

Abstract

Unique abilities in how human beings communicate, process information, avoid danger, form groups, and collectively come together in support of a common cause all likely contributed to our species’ survival. As investors, however, we are left with legacies from our ancestors that served them well as tribal hunters and gatherers but can inhibit our ability to make sound investment choices. Oyster shares a classification system for cognitive biases developed by Buster Benson then discusses how some important biases can detract from investment performance. He also shares how the assumptions that support certain economic models appear more appropriate when viewed through the lens of behavioral finance.