An article in CFA Institute discusses how emotions often outweigh logic when it comes to decision making.

The article cites research showing that our unconscious mind is “a major culprit: It filters out unpleasant information as it is received to reduce the sheer volume of data coming in. That means our conscious mind does not always receive all the pertinent information it needs to make the best decision.”

The following tendencies are highlighted:

• Familiarity bias: When we “trend toward investing in things we understand, or think we understand.”
• Confirmation bias: Prioritizing information that supports the opinion we already have.
• Overconfidence: Investors’ egos often come into when regarding stock-picking prowess and, the article notes, this is often “heightened by a gambler’s mindset: We remember our biggest scores, but selectively forget the losses we pile up in between our jackpots.”
• Herding: At the root of this tendency is the idea of social influence—”when large groups respond in the same way based on an outside factor, whether it’s new information, words from a perceived leader, or observe behavior by someone the herd identifies with.”