The Dow Jones Industrial Average closing above 17,000 on 03 July 2014 made headlines around the world, including in the Wall Street Journal and the BBC.
The Dow Jones Industrial Average is a famous share index in the United States and is seen as a measure of how the market is faring.
July 2014 was the first time it had closed above 17,000 – leading to the excitement. However, tricks of the mind may have also played a role in the reaction.
The magic of round numbers
This is because round numbers attract attention. And there is an argument that the these high profile moments that last in the mind can also influence trading decisions.
Back in 2010 when the Dow Jones Industrial Average reached 10,000 again after the global financial crisis, Carl “The Numbers Guy” Bialik wrote about the idea in the Wall Street Journal. He questioned "why should investors care more about a rise from 9900 to 10000 than one from 9800 to 9900?"
Question commonly accepted views
Those respondents who thought the 17,000 mark was special were correct. After all, it was a record high.
But those who did not think the 17,000 mark was special were, arguably, also correct. After all, the close the day before was also very high.
Round numbers might lead to a type of thinking trap that sees people overreact to information that is fresh in their minds. It is known as availability bias.
Ways to try to combat it include researching widely and questioning commonly accepted views. Look back not only months but years into the past and keep individual circumstances and money goals top of mind.