How do we make decision under uncertainty?

Behavioral finance uses psychological insights to inform financial theory. Behavioral finance holds that we do not behave like the rational and self-interested agent of economic theories. Homo Sapiens is not Homo Economicus. We have emotions. We are influenced by the others. We have cognitive bias. This papers aims to help you better understand how these…

I’m biased, I’m afraid…

    The basics of behavioral finance is that people deviate from the rational and self-interested  agent who supports theories of classical economics. Homo sapiens is not Homo oeconomicus. Our decisions are strongly influenced by emotions, social pressure, logical or memory fallacies. Such cognitive biases are often presented as ”bad things” which prevent us from making the right decision. However,…

Home bias

Do you prefer to bet on the increase of the Dow Jones or the CAC40 on the first of next September? Do you prefer to bet on the decrease of the Dow Jones or the CAC40 on the first of next September? These questions have been asked in many experiments on behavioral finance to MBA…

I’m biased, I’m afraid…

The basics of behavioral finance is that people deviate from the rational and self-interested  agent who supports theories of classical economics. Homo sapiens is not Homo oeconomicus. Our decisions are strongly influenced by emotions, social pressure, logical or memory fallacies. Such cognitive biases are often presented as ”bad things” which prevent us from making the right decision. However, cognitive biases…

Better now than later…

What would have been our worst torture in our childhood? Perhaps the Marshmallow test! Let’s imagine we are given a marshmallow and asked to wait for 10 minutes to get another one under the condition that we do not eat the original marshmallow. The test in images:   The Marshmallow effect in our neurons! Adults…

Thinking Fast…and Slow

Author We are dining in a very romantic restaurant. Of course, all our attention is focused on the words and behaviors of our beloved. She is the only person who matters in this dining room. Yet, we suddenly hear the name of our firm from the guy at the table behind us. Although, the guy is…

Heuristics: Can We Trust Our Intuition?

Author: Tiphaine Saltini Look at these pictures: Are these women working? If yes, what kind of job do they have? Where do they live? What languages do they speak? How educated are they? How old are they? How wealthy are they? Are they married? How many children do they have if any? Are they well…

Making complex decisions unconsciously…

  As we have seen previously, our mind has two ways of processing information. The first one is conscious and deliberate (system 2), the second one is unconscious and intuitive (system 1). Is it a big deal? No, as our system 1 is only in charge of irrelevant and boring automatic tasks such as breathing…

The Cognitive Bias Jungle

This list is extracted from the Wikipedia article ”List of cognitive biases” and provides a wide overview of the most common cognitive biases affecting decision-making Ambiguity effect The tendency to avoid options for which missing information makes the probability seem “unknown.” see article about cooperation with a stranger or an egoist Anchoring The tendency to…

Ambiguity averse?

Author: Tiphaine Saltini As a CFO, we can choose to invest in between three options: We get €500.000 We invest in a stock with a 50% of chance of earning €1M or nothing We invest in an industrial project on which we have little information except that we can earn €1M, if it is successful or…

Innovative Brain!

    When talking about innovation processes and creative cognition, we hypothesize that some ways of thinking and treating information are better to generate ideas. In cognitive psychology, this way of thinking is called divergent thinking, which is in opposition to the classical way of thinking called convergent thinking. Better understanding how the brain works,…