Emotional Decision-Making Impact Simulator

Emotions in Financial Decision-Making

Behavioral finance studies the psychological influences on economic decision-making. Emotions and cognitive biases often lead individuals to make irrational financial choices, deviating from optimal strategies. This simulator explores the hypothetical impact of such biases.

Common Emotional Biases:

• Fear Of Missing Out (FOMO): The anxiety that an exciting or interesting event may currently be happening elsewhere, often leading to impulsive buying in rising markets.
• Loss Aversion: The tendency to prefer avoiding losses to acquiring equivalent gains; people are more sensitive to losses than to gains, leading to holding onto losing positions too long or panic selling.
• Overconfidence Bias: An unwarranted faith in one's intuitive reasoning, judgments, or cognitive abilities, leading to excessive trading or taking on too much risk.
• Anchoring Bias: The tendency to rely too heavily on the first piece of information offered (the "anchor") when making decisions.
• Confirmation Bias: The tendency to search for, interpret, favor, and recall information in a way that confirms one's preexisting beliefs or hypotheses.

This simulator will highlight the potential financial consequences of FOMO and Loss Aversion, contrasting them with a disciplined investment approach.