Behavioural finance

Behavioral finance (behavioural economics) examines why people systematically act irrationally when making money decisions.

The most important findings:

1. Loss aversion: losses hurt twice as much as equal gains please → people hold losing shares too long and sell winners too early

2. Herd behaviour: when everyone buys, you want to buy too. When everyone sells, you want to sell too → amplifies bubbles and crashes

3. Anchoring heuristic: the first price you see shapes your judgement → "only €99 instead of €199" feels like a bargain

4. Overoptimism: people overestimate their own abilities → "I will beat the market!" (90% fail)

5. Status quo bias: people prefer the current state → stay with the expensive bank instead of switching

6. Mental accounting: money is treated differently depending on its source → a tax refund is spent "more loosely" than salary

The solution: automation! ETF savings plan, standing orders, fixed rules – take human emotions out of the game.