Rationality and Emotional Biases. Do You Know What They Are?

A common interpretation in behavioural finance is that rationality is the result of a pure cognitive process which can be behaviourally biased. In general, the bias has a negative connotation because it produces a distortion in the calculation of an outcome. When a decision-making process is cognitively biased the outcome leads to sub-optimal results or judgement errors. Roughly speaking, the subject might make irrational choices due to faulty reasoning, statistical errors, lack of information, memory errors, and the like. Differently, when the decision is emotionally biased, it means that the cognitive process has been influenced by feelings, affects, moods, and so on (let’s label these states “emotions”). ….[READ]