• BANDWAGON EFFECT

Everyone's buying COIN, so I'll buy some too

If I don't invest in this, I'll miss out

Have you ever had thoughts like these? Copying others because "so many people are doing it, so I will too", and getting caught up in social hype out of fear of falling behind, is called the Bandwagon Effect. People are especially prone to it when the stock market and share prices are rising.

How does the Bandwagon Effect work? A reliable way to make people believe something false is to repeat it often. Once information has spread, it becomes very hard to tell its familiarity apart from the truth. So instead of getting swept up in whatever is trending on social media, approach it with critical thinking.

How can you guard against it?

  • Get advice from a professional in the field who can give you constructive criticism
  • Don't let your ego get in the way. Look at the issue seriously from several angles, and research and think it through yourself

The Bandwagon Effect stems from psychological, sociological and economic factors. This bias shows up clearly in everyday life, in clothing and trends, and even in the stock market.

HOME BIAS

I'll only invest in stocks on the Mongolian market

I won't buy any coin other than Bitcoin

I won't buy any bonds except government bonds

Have you met people who think like this? Putting more trust in what is familiar and close to you, and staying in your comfort zone, is called HOME BIAS. For example, getting your information only in Mongolian just because it's easier for you. But this puts you at risk of missing out on many other opportunities and losing time.

More than 20% of the clients of top investment advisers have fallen prey to this bias. That's why some financial advisers have started recommending diversification and new alternatives to their clients.

So what now?

  • Review and diversify your investment strategy
  • Look into opportunities in international markets
  • Open up your thinking and don't box yourself in. Take a pluralistic view

LOSS AVERSION BIAS

When you invest, do you weigh the potential returns or the potential losses? The tendency to avoid losses rather than take risks to make a profit is called Loss Aversion Bias. One example is selling a high-return stock before it reaches its peak. This is common in investment markets, and it happens because, for that person, the possible gain from an investment brings less satisfaction than its risk.

How can you reduce it?

  • Have a clear, calculated strategy: what exactly will you do if you lose?
  • Ask questions instead of giving in to fear: well-grounded questions that tell you what the negative consequences would be
  • Learn from other people's losses

Research has named "loss aversion bias" as one of the most common biases among investors and market participants.