The Impact of Human Misjudgment Psychology on Investing

Everyone responds to their psychological emotions, which affects all aspects of their lives. Therefore, psychology is not an independent discipline; it can react chemically with many other disciplines, such as finance and architecture. A person who is not careful and unconcerned about precision is more likely to fail a project. Investment decision-making always appears in people’s daily life and takes an important role. Through linking psychology to investment, people can learn a deep understanding on their investment decision. Human Misjudgment Psychology is a not widely taught discipline although it has great influence on the decision-making. As a result, the focus of this paper will be on the impact of Human Misjudgment Psychology on investment decisions. However, due to the limitation of time, only five biases from the Human Misjudgment Psychology will be covered, so further research and studies of the other biases will be looking forward to being finished.

Aarts, H., Verplanken, B., & Van Knippenberg, A. (1998). Predicting behavior from actions in the past: Repeated decision making or a matter of habit? Journal of Applied Social Psychology, 28(15), 1355-1374.

Bondt, W. F., & Thaler, R. (1985). Does the stock market overreact? The Journal of Finance, 40(3), 793-805.

Boda, J. R., & Sunitha, G. (2018). Investor’s psychology in investment decision making: A behavioral finance approach. International Journal of Pure and Applied Mathematics, 119(7), 1253-1261.

Gupta, Y., & Ahmed, S. (2016). The impact of psychological factors on investment decision making of investors: An empirical analysis. EPRA International Journal of Economic and Business Review, 4(11), 40-52.

Griffin, T. (2015). Charlie Munger. New York: Columbia University Press.

Hornik, J. A. (1972). Conformity, consistency, and commitment: An investigation of a formal, theoretical model of decision-making processes in social situations (ProQuest dissertations, University of Illinois at Urbana-Champaign, 1972).

Kuo, W. H. (October 2010). Highlights of Munger’s 25 tendencies of human misjudgment. Middle East Health, Safety, Security, and Environment Conference and Exhibition. OnePetro.

Munger, C. T. (1995). The psychology of human misjudgment. Cambridge, MA: Harvard Law School.

Nofsinger, J. R. (2017). The psychology of investing. New York: Routledge.

Stehr, N., & Grundmann, R. (2011). Experts: The knowledge and power of expertise. New York: Routledge.