One of the questions I’m most often asked by reporters covering finance is: “What are the biggest risks facing investors?” My usual response is that the biggest risk confronting most investors is staring right back at them when they look in the mirror. And there’s plenty of academic research to support that view.
Much of that research comes from the field of behavioral finance, which is the study of human behavior and how that behavior leads to investment errors, including the mispricing of assets, thus demonstrating investors aren’t always fully rational, and that markets aren’t perfectly efficient.
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