In this video, you will learn about a concept known as base rate fallacy and how you can overcome it.

#baseratefallacy #decisionmaking #wallstreetmojo #investing #trading #stockmarket #behavioralfinance

Chapters:
00:00 – Introduction
00:33 – What is base rate fallacy?
02:43 – Example of base rate Fallacy.
03:44 – How to overcome?

What is base rate fallacy?
Many investors and traders fall for something known as base rate fallacy. It is a key concept in behavioral finance, and it was pioneered by 2 Israeli psychologists, Daniel Kahneman and Amos Tversky.
(Explained in detail in the video)

Base rate fallacy is a human tendency to give more importance to particularly small data over a large set of data that sets the base rate.

Base rate fallacy refers to people misjudging events by focusing on events that they feel are more relevant, and they ignore events that are, in turn, the most relevant.

(Explained in detail in the video)

Example
What would you do if a company with a bad track record released a good earnings report?

Would you invest in that company because it had a good performance, or will you avoid investing in it because it has a bad track record?

If you choose to invest in it, you have fallen for the base rate fallacy.

(Explained in detail in the video)

How to overcome?
You should stop making decisions based on a new piece of information and consider the overall context set by past data.

If you want to invest in any stock or other financial instrument, you should do that with a long-term mindset. It will allow you to think deeply and not rush into it.
(Explained in detail in the video)
If you do not have much investing experience, you can consider consulting someone with ample knowledge and experience in investing. This will save you from making poor investment decisions and costing you money.

We regularly come up with such content on finance, so do subscribe to the channel if you don’t want to miss out on our content.

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