Read the passage carefully
Over the years, researchers have identified human biases and emotions that can lead to irrational
responses in the modern world of personal finance and investing. Here are three common money
mistakes and ways to avoid them.
Research shows that many investors will try not to lose money to a greater extent than they seek
gains. In psychology this is called 'loss aversion'. According to Prof Lo, this behaviour can show
itself in different ways. One example is when people avoid investments that have a risk of a loss,
even though the chance of a profit is higher. Another is being unwilling to sell a losing investment -
because you always hope the investment will start to rise in value again. A third example is failing
to make a new investment because of the pain of losing money on an existing investment.
In extreme situations, loss aversion can lead people to hide their savings for a long time in low-
interest accounts that may not leave them with enough money in retirement.
Another type of investor, with a different psychology, will show the opposite behaviour: such people
will take on too much risk. They seek very big returns and think they can beat the market. Chris
Cordaro, Chief Investment Officer at Regent Atlantic, thinks many investors believe they understand
what the market is likely to do next. 'In the market, we believe we have a much greater ability to
predict what is going to happen than we actually do. People trying to time the market has probably
