G is for Gambler’s Fallacy

The Gambler's Fallacy occurs when someone believes that a run of a certain type in a random process makes a reversion more likely. A run of reds on a roulette wheel doesn't make black any more likely next time, but people persist in believing that it will. Equally a run of daily losses on a stock doesn't mean a profit is guaranteed tomorrow.

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F is for Framing

Framing is the idea that we make different decisions about the same thing when in a different mental state. The worrying thing about this being that other people – politicians, financial institutions and advertisers being prominent examples – can use this to influence our choices. Of course, such upstanding examples of modern society would never stoop so low, would they?

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E is for Ego Depletion

Ego Depletion occurs when we're forced into too many acts of self-control in a short period of time. No matter how strong-willed you are you'll be more likely to make poor choices or succumb to temptation after sustained periods of self-denial or decision making. Although, of course, "sustained" is a relative term.

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D is for Disposition Effect

The Disposition Effect states that we're more likely to sell winners than losers but it also makes a more general statement. When things go well we tend to ascribe our success to our innate abilities – our disposition. When they go wrong we tend to blame external factors – our situation.  And the result is that we never learn very much.

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C is for Confirmation Bias

Confirmation Bias refers to our dedicated and sometimes demented preference for information that supports our pre-existing beliefs or decisions, and our equally fervent attempts to avoid finding disconfirming evidence. We can even get to the point of taking the latter as the former (although strictly that's a different problem, the Backfire Effect).

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B is for Base Rate Neglect

Base Rate Neglect is the all-too-human tendency to ignore the background rate at which some event occurs when trying to assess how probable it is. It's a facet of how our brains are poorly attuned to statistics.

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A is for Anchoring

Anchoring is a simple psychological bias that causes us to focus on some initial value and then make decisions with reference to it.  For an investor a typical anchor is a purchase price, and you'll often find people won't sell below that price, although that's wrapped up with other biases such as loss aversion.

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