Behavioural biases - the biggest challenges to self- directed Investors

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Simonova, Irina
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MBA in Finance
Dublin Business School
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This dissertation is an attempt to look at the problem of behavioral biases from the perspective of self-directed investors. It is an attempt to justify how important this knowledge is for this segment of investors. The behavioral biases issue can become even more significant given that the segment of direct investors was constantly growing over last years and predictions are that it will continue to grow in the nearest future. Behavioral biases come from the behavioral finance theory, the theory that embraces finance and psychology. Theory of behavioral finance started to gain its significance since the moment it was discovered that people and markets are not rational. It is now obvious that investors cannot be successful until they start to exploit the techniques of behavioral finance on top of the skills and techniques of traditional finance theories. It was established that self-directed investors are the ones who are most susceptible to behavioral biases as the sector comprises of people from different backgrounds. We all learn from our own mistakes, but the process of learning sometimes can take too long that it can be too late. This dissertation is an attempt to attract the attention of self-directed investors to the challenges they are facing, namely to problems connected with behavioral biases. The aim of this dissertation is to prove that self-directed investors are prone to behavioral biases so to prove the significance of the subject to them and to show what types of biases are more common and what has to be done in order to avoid them or to mitigate their effect. Author Keywords: Behavioral biases, self-directed investors