Psychological Traps in Decision-making: Anchoring, Heuristics, and Loss Aversion

Abstract

Through a comprehensive analysis of existing theories and related experimental research, this article explores the psychological mechanisms and causes of three critical psychological phenomena in behavioral finance - anchoring effect, representative heuristic and loss aversion, and their specific manifestations in the financial market. The research background reveals the prevalence of these psychological biases in investment decisions and their impact on market efficiency. This article analyzes the cognitive and emotional factors behind these phenomena and explores the impact of cultural and social context on their manifestations. Furthermore, by comparing cases in different market and economic contexts, this study demonstrates how these psychological biases can be identified and exploited in global financial practices. The findings suggest that a deeper understanding of these psychological biases is critical to optimizing investment decisions and promoting market stability. The insights from this study provide market participants with practical strategies to deal with and exploit these psychological biases and promote the exchange and integration of financial practice and behavioral science.