Over-optimism – or overconfidence, as it is known in behavioural finance circles – is “hardwired” into people, writes author Peg Streep on Psychology Today. Streep writes that it “amps up” other thinking traps (including the sunk cost trap and the illusion of control) and can encourage people to avoid dealing with negative fallout.
More difficult than ABC
Shares in companies with share ticker symbols from the start of the alphabet may be traded differently, as they appear to grab investors’ attention, writes economist and eZonomics contributor Chris Dillow in the Investors Chronicle. Dillow cites a study by Jennifer Itzkowitz of Seton Hall University in the United States that also found that there’s more trading in shares where ticker symbols are actual English words than those with ticker symbols that are a jumble of letters. Dillow says the reason is “limited attention” and these shares could well grab attention because they are listed first or are particularly memorable. Dillow warns against trading on “noise”, suggesting there are better ways to pick shares.
Back to basics
Low levels of financial literacy are still a problem for younger generations, with only 24% of Millennials (people born between 1980 and early 2000s) surveyed able to correctly answer simple questions covering financial basics in a study by FINRA Investor Education Foundation in the United States. The questions include this true or false: A 15-year mortgage typically requires higher monthly payments than a 30-year mortgage but the total interest over the life of the loan will be less? The answer is true.