Behavioral Finance

Free CFP Exam lesson in Psychology of Financial Planning. 13 min read, ~2,024 words.

Overconfidence drives excessive trading, concentrated positions, and underestimated risk, the most costly individual investor bias. Loss aversion (Prospect Theory): losses hurt ~2x as much as equivalent gains, and outcomes are judged against a reference point, not absolute wealth. Loss aversion produces the disposition effect: sell winners early, hold losers too...