In investing you can be your own worst enemy if you do not know what your mental temperament is. We found the article, 'Aspects of Investor Psychology' , by Daniel Kahneman, and Mark W. Riepe, interesting and hence are presenting a few excerpts for your perusal. Daniel Kahneman, Ph.D. is the Eugene Higgins Professor of Psychology, Princeton University. Decision theorists argue that any significant decision can be described as a choice between gambles, because the outcomes of possible options are not fully known in advance. A gamble is characterized by the range of its possible outcomes and by the probabilities of these outcomes.
Judgments can be systematically wrong in various ways.
Systematic errors of judgment are called biases. We start by dealing with a selection of judgment biases. Then we discuss errors of preference, which arise either from mistakes that people make in assigning values to future outcomes or from improper combinations of probabilities and values. Biases of Judgment Investors who are prone to these biases will take risks that he does not acknowledge, experience outcomes that they did not anticipate, will be prone to unjustified trading, and may end up blaming themselves or others when outcomes are bad. Indeed, decision analysts recommend that decision-makers should always think of uncertain quantities in terms of confidence intervals, rather than point estimates or best guesses.