Other Biases in the Behavioural Finance Literature



This chapter deals with a variety of biases, including the gambler’s fallacy, hindsight bias, panic, herd behaviour, status quo bias, survivorship bias, money illusion, attachment bias, familiarity and home bias, illusion of control, conservatism bias and narcissism. We show that narcissists are drawn to finance, law and politics and suggest that narcissistic behaviour is to blame for the global financial crisis as the narcissistic personality disorder of corporate leaders led them to substitute robust risk management for greed and personal gains by promoting self-serving and grandiose aims. We argue that money illusion is more problematical than it appears to be because governments always under-report inflation, and that the status quo bias can lead to better or less bad outcomes than otherwise.


Gambler’s Fallacy Hindsight Bias Panic Herd Behaviour Status Quo Bias Survivorship Bias Money Illusion Attachment Bias Familiarity Home Bias Illusion of Control Conservatism Bias Narcissism 


  1. Ahmed, K. (2017, February 17). Understanding Trump’s Narcissism Could be the Key to Opposing him. The Guardian.Google Scholar
  2. Aktas, N., De Bodt, E., Bollaert, H., & Roll, R. (2016). CEO Narcissism and the Takeover Process: From Private Initiation to Deal Completion. Journal of Financial and Quantitative Analysis, 51, 113–137.CrossRefGoogle Scholar
  3. Baxter, M., & Jermann, U. J. (1997). The International Diversification Puzzle is Worse Than You Think. American Economic Review, 87, 170–180.Google Scholar
  4. Bekaert, G., Hoyem, K., Hu, W. Y., & Ravina, E. (2014). Who is Internationally Diversified? Evidence from 296 401(k) Plans. 16th Annual Joint Meeting of the Retirement Research Consortium, 7–8 August, Washington, DC.Google Scholar
  5. Bones, C. (2009, July 20). Leadership: A Crisis of Confidence?
  6. Broughton, P. (2009, March 1). Harvard’s Masters of Apocalypse.
  7. Brunell, A., & Gentry, W. (2008). Leader Emergence: The Case of the Narcissistic Leader. Personality and Social Psychology Bulletin, 34, 1063–1076.CrossRefGoogle Scholar
  8. Burns, B. D., & Corpus, B. (2004). Randomness and Inductions from Streaks: “Gambler’s Fallacy” versus “Hot Hand”. Psychonomic Bulletin & Review, 11, 179–184.CrossRefGoogle Scholar
  9. Cai, F., & Warnock, F. E. (2006). International Diversification at Home and Abroad (NBER Working Papers No. 12220).Google Scholar
  10. Chan, K., Covrig, V., & Ng, L. (2005). What Determines Domestic Bias and Foreign Bias? Evidence from Mutual Fund Equity Allocation Worldwide. Journal of Finance, 60, 1495–1534.CrossRefGoogle Scholar
  11. Cohen, N. (2005). We All Have Personality Disorders Now. Newstateman, 18, 30–31.Google Scholar
  12. Conger, J. (2002, November 29). Danger Delusion: Success and Self-Confidence often Breeds Narcissism and a Sense of Infallibility. Financial Times.Google Scholar
  13. Cooper, I., & Kaplanis, E. (1994). Home Bias in Equity Portfolios, Inflation Hedging, and International Capital Market Equilibrium. Review of Financial Studies, 7, 45–60.CrossRefGoogle Scholar
  14. Coval, J., & Moskowitz, T. J. (1999). Home Bias at Home: Local Equity Preference in Domestic Portfolio. Journal of Finance, 54, 2045–2073.CrossRefGoogle Scholar
  15. Darling, D. (2004). Roulette. The Universal Book of Mathematics: From Abracadabra to Zeno’s Paradoxes. New York: Wiley.Google Scholar
  16. Elton, E., Gruber, M., & Blake, C. R. (1996). Survivor Bias and Mutual Fund Performance. Review of Financial Studies, 9, 1097–1120.CrossRefGoogle Scholar
  17. Errunza, V., & Losq, E. (1985). International Asset Pricing and Mild Segmentation: Theory and Test. Journal of Finance, 40, 105–124.CrossRefGoogle Scholar
  18. Fenton-O’Creevym, M., Nicholson, N., Soane, E., & Willman, P. (2003). Trading on Illusions: Unrealistic Perceptions of Control and Trading Performance. Journal of Occupational and Organizational Psychology, 76, 56–68.Google Scholar
  19. French, K., & Poterba, J. (1991). Investor Diversification and International Equity Markets. American Economic Review, 81, 222–226.Google Scholar
  20. Grinblatt, M., & Keloharju, M. (2001). How Distance, Language, and Culture Influence Stock-Holdings and Trades. Journal of Finance, 56, 1053–1073.CrossRefGoogle Scholar
  21. Hassett, K. (2009, February 22). How Ivy League Narcissists Killed Wall Street.
  22. Hawken, P. (2017). Drawdown the Most Comprehensive Plan Ever Proposed to Reverse Global Warming, Capital Institute.
  23. Hosie, R. (2017, January 30). ‘Malignant Narcisissm’: Donald Trump Displays Classic Traits of Mental Illness, Claim Psychologists. The Independent.Google Scholar
  24. Kalra, R., Stoichev, M., & Sundaram, S. (2004). Diminishing Gains from International Diversification. Financial Services Review, 13, 199–213.Google Scholar
  25. Kashmiri, S., Nicol, C. D., & Arora, S. (2017). Me, Myself, and I: Influence of CEO Narcissism on Firms’ Innovation Strategy and the Likelihood of Product-Harm Crises. Journal of the Academy of Marketing Science (published on line).Google Scholar
  26. Laker, D. (2003). Benchmark Rebalancing Calculations. Journal of Performance Measurement, 7, 8–23.Google Scholar
  27. Markstein, D. (2016). Keeping Up with the Joneses.
  28. McCulloch, N. (2011). Tackling Instability in Financial Markets with a Panic Tax. IDS Bulletin, 42, 109–113.CrossRefGoogle Scholar
  29. McKenna, F. P. (1993). It won’t Happen to Me: Unrealistic Optimism or Illusion of Control? British Journal of Psychology, 84, 39–50.CrossRefGoogle Scholar
  30. Monti, M., & Legrenzi, P. (2009). Investment Decision-Making and Hindsight Bias.
  31. Moosa, I. A. (1997). Does the Chinese Official CPI Underestimate Inflation? Applied Economics Letters, 4, 301–304.CrossRefGoogle Scholar
  32. Moosa, I. A., & Al-Deehani, T. (2009). The Myth of International Diversification. Economia Internazionale, 62, 1–24.Google Scholar
  33. Moosa, I. A., & Ramiah, V. (2014). Emerging Market Stocks in Global Portfolios: A Hedging Approach. In M. Arouri, S. Boubaker and D. Nguyen, D. (Eds.). Emerging Markets and the Global Economy: A Handbook. Amsterdam: Elsevier.Google Scholar
  34. Morris, A. (2017, April 5). Trump and the Pathology of Narcissism. Rolling Stones.Google Scholar
  35. Nisbett, R. E., & Ross, L. (1980). Human Inference: Strategies and Shortcomings in Social Judgement. Englewood Cliffs, NJ: Prentice-Hall.Google Scholar
  36. Obstfeld, M., & Rogoff, K. (1998). Foundations of Macroeconomics. Cambridge, MA: MIT Press.Google Scholar
  37. Perloff, L. S. (1983). Perceptions of Vulnerability to Victimization. Journal of Social Issues, 39, 41–61.CrossRefGoogle Scholar
  38. Raskin, R., & Shaw, R. (1998). Narcissism and the Use of Personal Pronouns. Journal of Personality, 56, 393–404.CrossRefGoogle Scholar
  39. Rogers, P. (1998). The Cognitive Psychology of Lottery Gambling: A Theoretical Review. Journal of Gambling Studies, 14, 111–134.CrossRefGoogle Scholar
  40. Ronningstam, E., & Gunderson, J. (1990). Identifying Criteria for Narcissistic Personality Disorder. American Journal of Psychiatry, 147, 918–922.CrossRefGoogle Scholar
  41. Rowland, P. F. (1999). Transaction Costs and International Portfolio Diversification. Journal of International Economics, 49, 145–170.CrossRefGoogle Scholar
  42. Safire, W. (1998, November 15). On Language; Up the Down Ladder. New York Times.Google Scholar
  43. Samuelson, W., & Zeckhauser, R. J. (1988). Status Quo Bias in Decision Making. Journal of Risk and Uncertainty, 1, 7–59.CrossRefGoogle Scholar
  44. Spahn, P. B. (1996). The Tobin Tax and Exchange Rate Stability Counterpoint. Finance and Development, 33, 24–27.Google Scholar
  45. Stockman, A. C., & Dellas, H. (1989). International Portfolio Nondiversification and Exchange Rate Variability. Journal of International Economics, 26, 271–290.CrossRefGoogle Scholar
  46. Sull, D. (1999). Why Good Companies Go Bad. Harvard Business Review, July/August, 1–11.Google Scholar
  47. Sundali, J., & Croson, R. (2006). Biases in Casino Betting: The Hot Hand and the Gambler’s Fallacy. Judgment and Decision Making, 1, 1–12.Google Scholar
  48. Swedroe, L. (2010, September 20). Why International Diversification is Important. Moneywatch.
  49. Tempany, A. (2010, September 4). When Narcissism Becomes Pathological. Financial Times Magazine.Google Scholar
  50. Trotter, W. (1921). Instincts of the Herd in Peace and War. London: T.F. Unwin.Google Scholar
  51. Twenge, J., Konrath, S., Foster, J., Campbell, W. K., & Bushman, B. (2009). The Narcissism Epidemic: Living in the Age of Entitlement. New York: Free Press.Google Scholar
  52. Vakinin, S. (2015). Malignant Self-Love: Narcissism Revisited. Skopje: Lidija Rangelovska.Google Scholar
  53. Veblen, T. (1934). The Theory of the Leisure Class: An Economic Study of Institutions. New York: The Modern Library.Google Scholar
  54. Wheatley, S. M. (2001). Keeping up with the Joneses, Human Capital, and the Home-Equity Biases (Working Paper). University of Melbourne.Google Scholar
  55. Wright, A., & McCarthy, S. (2002). Does Purchasing Stock in Australian Multinational Corporations Create International Portfolio Diversification? Multinational Business Review, 10, 79–83.Google Scholar

Copyright information

© The Author(s) 2017

Authors and Affiliations

  1. 1.School of Economics, Finance and MarketingRMITMelbourneAustralia
  2. 2.School of CommerceUNISAAdelaideAustralia

Personalised recommendations