The Skinny on Options: Abstract Applications

Confirmation Bias

The Skinny on Options: Abstract Applications

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Today, we take another look into behavioral finance. We’ve already learned quite a bit, with Prospect Theory, Primacy and Recency Biases, and Sunk Costs, and today is no different. Confirmation Bias is our tendency to selectively remember a certain subset of observations that support our preexisting beliefs. As a result, we can end up with a skewed perception of reality. The answer to this is, not surprisingly, probabilistic analysis.

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