Behavioral Finance quiz

What is cognitive dissonance? Anyone…

Believing in two contradictory statements at the same time.


having 2 contradictory ideas is mind… and how the mind alters and adjusts to free itself from this contradiction.

come on guys this is neither a psychology nor a philosophy course. from what I recall it’s to do with a delusional forecaster who believes he/she is smarter than they actually are…I think

+1 CFASniper. Cognitive Dissonance: You think you have superior predicting/decision making capabilities.

isnt that the same as overconfidence?

We seek to reduce cog dissonance (anxiety caused by competeing thoughts) by coming up with defenses. I feel like its related to everything we learned about in behavioral finance. You went to a great school, passed CFA, great job at top firm. You get overconfident in your abilities to forecast. If you are always right there is no dissonance, but when something goes wrong, your brain says “wait, I’m this baller analyst…I’m always right…WTf happened”. You get anxious. Then your brain finds ways to explain the competeing ideas (you are awesome vs. you messed up). Brain does this with all the defenses. Anxiety is reduced when the brain says “its all good…you are indeed an awesome analyst, but fed went overboard in its i rate hike vs. what we thought…besides that we were dead on…fed stinks, but dont worry, you are an awesome forecaster.” dissonance reduced. Applies to bad stock picking, holding onto losers too long, paying up for stocks that don’t deserve it, anything really. Brain seeks balance.

june2009 > Dr Phil