Behavioral Biases: Cognitive Errors and Emotional Biases

Behavioral biases are irrational beliefs or behaviors that can influence our decision-making process. Behavioral biases may make our decisions to stray from what is prescribed or recommended, if you may, by the traditional finance theory. Behavioral bias is split into two types:

1. Cognitive errors.
2. Emotional biases.

Cognitive biases, alternatively known as faulty cognitive reasoning, refer to erroneous ways of thinking, reasoning, and judgment that characterize how we process and interpret information.  

On the other hand, emotional bias occurs when our emotions blur our sense of judgment, reasoning, and information decoding processes. Emotional bias pushes us to make impulsive decisions and judgments that are not premised upon facts, evidence, logic, or research.

Emotional biases are more difficult to correct than cognitive biases because they are unpremeditated. It is, nevertheless, noteworthy that cognitive errors can be eliminated through such interventions as advice, education, and provision of more information. https://www.caasimada.net

Question

 Which of the following is most likely a form of behavioral bias based on faulty cognitive reasoning?

1. Cognitive errors.
2. Emotional biases.
3. Cognitive errors and emotional biases.

Solution 

The correct answer is A.

Cognitive errors are based on faulty cognitive reasoning.

B and C are incorrect. Emotional biases are based on feelings or emotions.