https://propertyplanning.com.au/propertyplannerbuyerprofessor/ In this week's episode Dave, Cate and Pete take you through: How does bias impact our financial decisions? Behavioural biases are defined as unconscious beliefs that influence our decisions. In the field of finance, behavioural bias is a study that focuses on psychological factors that influence the decisions of investors. There are some 180 recognised biases and unfortunately we can't unpack them all, however the trio have picked the top 6 biases to investigate. Bias 1 - Mental accounting Mental accounting refers to the concept where people treat money differently depending on where it came from and what we think it should be used for. The trio discuss the varying ways that this bias can manifest in our financial lives. Bias 2 - Loss aversion This bias refers to a higher sensitivity to incurring losses than making gains. It impacts investors when the fear of loss is disproportionate to the risk itself, and fear stalls their ability to make a decision. The trio delve into how this bias can hamper investors and how to mitigate the influence of this bias if you are conservative in nature. Bias 3 - Overconfidence bias This bias is the tendency to see ourselves as better than we are and is common in investing. Overconfident investors generally do not manage and control risk properly; they engage in active investing, (instead of passive investing) and adopt a DIY philosophy. In the property space, we see it most commonly when people assume they can carry out a major renovation or development, when ordinarily this activity should be carried out by a skilled/experienced renovator or builder. Bias 4 - Anchoring bias Anchoring is a phenomenon where someone values an initial piece of information too much to make subsequent judgments. In investing, this can influence decision-making regarding a security, such as when to sell or buy an investment. The trio discuss how this bias can come about: either through a negative or positive personal experience, (or third party experience). Anchoring bias can also be passed on through generations. The trio discuss how you can effectively tackle this bias and carry out your own assessments. Bias 5 - Familiarity bias This bias is characterised by investors preferring familiar investments, despite the advantages of diversification. This can manifest itself in people wanting to purchase investments in their own state, region, city or suburb. To counteract this bias, you need to be prepared to do comprehensive assessments to look at a broad array of options. Bias 6 - Herd behaviour bias Herd behaviour occurs when investors follow others rather than making their own decisions based on financial data. People follow the herd because it feels safer, which is the opposite of contrarian investing. The trio discuss examples of herd behaviour in property. How can buyers think more rationally and independently? The trio share their insights on how to make informed and successful property decisions, and specifically; to mitigate any biases that may be in play. Visit the show notes: https://propertyplanning.com.au/behavioural-economics-101-tackling-the-biases-that-impact-our-property-and-investment-decisions-ep-134/