Investment Decision-Making and Hindsight Bias

Abstract

We investigated the relationships between investment decision making and hindsight bias. Economic studies consider the agent’s foresight perspective only, without taking into account the hindsight bias possible effects in the decision-making process. We studied the subject’s overall perceived error by focusing on the causal relations between the estimate and memory errors and by analysing his confidence in estimates and memories, therefore, his meta cognitions.We found strong evidence for the consequences that hindsight bias can have on the investor’s portfolio decisions: the portfolio allocation perception and therefore, the risk exposure.


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