Introduction
This semester, I am taking Introduction to Psychology along with Introduction to Business Finance. Some concepts from psychology class keep coming up when I study finance topics. I am writing this to note down which ones actually help me understand finance better and which ones feel less useful.
Background
In psychology, we learned about how people make decisions, different biases, and how the mind works under pressure. In business finance, I am learning about risk, returns, and money decisions. I started noticing overlaps while reviewing my notes.
Link to Guide: Behavioural Finance Overview
Key Points
Anchoring bias is when I stick to the first number I see instead of properly recalculating. I noticed this while doing time value of money problems.
Loss aversion means I feel losses more strongly than gains. This explains why I hesitate on certain risk questions.
Overconfidence makes me think my calculations are more accurate than they really are.
Confirmation bias happens when I only focus on information that supports my first answer.
Present bias is preferring immediate results over better long-term ones in compounding examples.
Mental accounting is treating money differently based on its source.
I understood loss aversion and anchoring better than the others because I could see them in simple finance examples.
Key Takeaway
Some psychology concepts help me see why I get stuck on certain finance problems. Anchoring and loss aversion feel practical. Others, like herd mentality, feel less connected to what I am studying right now. I still get confused between similar biases. I need to review my psychology notes more while doing finance work. This crossover is interesting, but not everything transfers easily.
Check my Latest Post on Time Value of Money: Problems That Still Confuse Me
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