Hindsight Bias

Guest Post:

Many concepts in finance and economics are predicated on markets behaving rationally. Unfortunately for economists everywhere, humans can often behave irrationally, thus ruining many predictive models. In response to this apparent failing in what is called the “efficient market hypothesis,” a segment of economics called behavioral finance has emerged in order to explain why irrational behavior happens. Behavioral finance is an intersection of psychology and economics that studies why people behave the way they do when it comes to finances, risk, and other topics. Continue reading