Subliminal patterns in thinking; cognitive biases are subconscious patterns that lead to deviations from logical and rational decision-making. Founded in human psychology and evolution, it is a mental shortcut designed to simplify complex decisions. However, in investing, these biases can distort perception, skew risk assessment, and foster impulsive actions, thus resulting in a failure to reach optimal outcomes.
Investing is a game of numbers but also a game of psychology. Rational thinking is involved in making the right kind of investment decisions, yet there is also a probability of cognitive biases that include mental shortcuts or errors in judgment, leading to irrational behavior, emotional decisions, and costly mistakes that can defeat the very best of investment plans.