Proceedings

This role associated to feelings is often important and maybe more than the part
played by pure cognition.
The study take into consideration 5 of the emotional biases listed below:
� Optimism bias
� Endowment bias
� Self-control bias
� Loss aversion bias
� Regret aversion bias
4.1. Optimism bias
According to the John Maynard Keynes (The general theory of employment, interest
and money, 1936) “even apart from the instability due to speculation, there is the
instability due to the characteristic of human nature that a large proportion of our
positive activities depend on spontaneous optimism rather than a mathematical
expectation, whether moral or hedonistic or economic”
Optimism bias, originally referred to as unrealistic optimism (Weinstein, 1980), could
be defined as the tendency of individuals to be overly optimistic about the outcome of
planned actions. This includes over-estimating the likelihood of positive events and
under-estimating the likelihood of negative events.
Hope and fear are obviously sentimental states characteristic of this form of
unrealistic optimism and they could represent the main motivational factors of a
particular way of action. The entrance of unrealistic optimism into financial world
could potential hurt if it leads to passivity and lack of interest thinking that the
problem will self solve or impulsive behaviour, taking wrong decision based on
illusions.
Kahneman and Lovallo realised a more technical description of this error. They
consider it determined by the investors’ inability to analyse the facts form outside,
non-passionately and comparing the current situation with the previous ones (Lovallo
and Kahneman, 2003)
The financial analysts are not exempt from this bias. Analysts are typically
overoptimistic, slow to revise their forecasts to reflect new economic conditions, and
prone to making increasingly inaccurate forecasts when economic growth declined
4.2. Endowment bias
The endowment bias is a really common feeling among the owners of economic assets
who consider that they worth more than the market because ownership increase value
in the owner’s mind. As a result the investor will ask for more money to sell the asset
than he will give to obtain it. The disparity between the willingness to pay for a
certain good (WTP) and the willingness to accept retribution payments in exchange
for giving up this good (WTA) cold be explained by the “disutility from parting with
one’s endowment and/or by an extra utility from ownership which is not anticipated
by individuals who are not endowed with the good” (Bischoff, 2006).
~ 844 ~