Bìznes Inform (Apr 2024)
The Cognitive Biases Related to Information and Their Manifestation in the Financial Market
Abstract
The article analyzes the impact of cognitive biases regarding the perception of information and its consequences for the decisions of market participants and the formation of the overall picture of the financial market. It is noted that a number of cognitive biases are associated with the circulation of information in the market and the peculiarities of its perception. The main cognitive biases regarding the perception of information in the financial market have been identified: bias of disseminated information (in the context of financial decision-making and market dynamics can lead to an increase in the impact of this information on market decisions); the oddity effect (investors may react emotionally to such events, leading to sharp fluctuations in asset prices, panic or euphoria in the market, depending on the nature of these events); generation effect (investors can better remember and more reliably perceive information that they themselves have created or expressed, compared to information they have received from other sources); Google effect (due to the ease of obtaining information on the Internet, investors may become less cautious about storing key financial data in their memory); the disinformation effect (investors may receive new information after they have already formed their opinion about a particular financial event or trend, and this new information may lead to misinterpretation or overestimation of the facts that have occurred); sentiment effect (investors who are in a positive mood may pay more attention to positive information, which can lead to more optimistic investment decisions); the effect of complexity of information processing (investors can remember and better understand complex and in-depth analyses that require more time and attention to process); information bias (investors may be inclined to constantly monitor news, updates, and analysis, even if this information does not have a direct impact on their current or future investment decisions); the effect of «hostile» media (investors can react to financial news and analysis according to their own biases). It is noted that in order to avoid the negative consequences of cognitive biases in the financial market, it is important to develop financial literacy, the ability to think critically and have self-control in the process of making financial decisions.
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