Traders, as you know, economic influencers are weighing in on December 16 interest rate hike. Larry Summers, for example, pronounced that plausible bubbles are no longer plausible. In the same breadth he also said that increasing rates as a prophylactic against financial instability is quiet odd. http://bloom.bg/1lLpiBy
Given that the landmark hike moment is inevitable, here are 3 behavioral biases which you need to be aware of when dealing with new events.
Embrace Ambiguity: Know your asset: Research has revealed that if you are feel competent enough to understand your asset you can guard against ambiguity aversion. In other words you would be better able to assign probability to an outcome then just pure conjecture or following the herd. Competence will help you better embrace ambiguity.
Don't let difficult and new manipulate: Compare if it is worth it. Risk perception increases when we compare the new with a situation which was familiar and therefore easier to analyse. So although availability of low interest rates is familiar, implications of investing in familiar should not be compared to the implications of unfamiliar. Analyze the risk of the current policy without comparing the advantages of past.
Don't amplify Loss: Be aware that if loss coincides with a new event, its psychological impact gets magnified. The real absolute loss can still be contained. Guard against this amplification effect.
Hi. My name is Ritu Gurha Lisso, a business journalist plus content writer plus social marketing pro all folded into one. I am a polyglot and have lived and worked in Asia, Europe and now USA. I have managed to meander from art reviews to bonds market analysis and behavior finance. In my current avatar as a business communications professional and a behavioural finance enthusiast, i am passionate about creating social content and social strategy. Please feel free to reach out and connect with me @ritugurha.
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