Decision-making

Published on March 9, 2021 by Market Abuse Centre

Many economic theories are based on ‘homo economicus’, the rational human being. Regrettably, this assumption has caused a great deal of trouble. Humans, including investors, consumers and traders, seem to base a lot of their decisions on irrational considerations.

 

It seems that often behaviour is driven significantly by context, as opposed to content. Cognitive biases, heuristics, framing and other anomalies of the thinking process cause mental traps. Subsequently, people are often misled by their own mind.

 

Emotions often play a crucial role in the decision-making process. The fear factor can be one of the drivers impacting choices. Typically, this leads to underperformance. Eventually, it may even lead to unethical or non-integer behaviour.

 

Stress is another relevant aspect that sets context. For some professionals this element is an important part of their profession. However, one could doubt whether enough attention is given to this factor. Is the individual conscious of this matter? Is management sufficiently aware of its relevance? One can wonder whether managers are capable to guide or control their staff in this respect. Do HR departments facilitate traders in this field?

 

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