Plain-English guides to the mental shortcuts that cost investors money, what the research says about each one, and how to work around them.
Prospect theory
- Disposition effectInvestors tend to sell winners too soon and hold losers too long. Here is what the evidence shows, why it happens, and how to counter it.
- Loss aversionWhy losses feel worse than equal gains, how that shapes selling and risk-taking, and why the size of the effect is debated.
- Mental accountingMental accounting is treating money differently by source or purpose. It shapes how investors take risk, treat dividends and hold losers.