Cognitive Bias

A Cognitive Bias is a systematic error in cognition that arises when people are processing and interpreting information when making a decision often flawed by personal beliefs. As it is rooted in thought processing errors that emerge from problems with memory, attention, attribution, and other mental mistakes, these biases play a major role in behavioral finance theory and are studied by investors and academics alike. In some cases, cognitive biases make one's thinking and decision-making faster and more efficient, as it leads to more effective actions in a given context.