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What Is a Santa Claus Rally? A Santa Claus Rally refers to the historical tendency for the stock market to rise during the final trading days of December and the first couple of trading days in January. Traditionally, this period includes the last five trading days of the year and the first two trading days of the new year. In plain English: stocks often get a late-December boost—right when people are hanging lights, wrapping gifts, and eating one too many cookies.

Definition of Halloween Effect The Halloween Effect (sometimes called Sell in May and Go Away) is a market anomaly that suggests stocks tend to perform better during the six-month period from November through April than they do from May through October. In plain English: historically speaking, the market has often delivered stronger returns in the “winter” months than in the “summer” months.

Definition of January Effect The January Effect is a market pattern where stocks—especially small-cap stocks—tend to perform better in January than in other months. The theory suggests that prices rise early in the year after investors rebalance portfolios, reinvest bonuses, or buy back stocks they sold in December. In plain English: January often gets a little more bullish than average.

Definition of Market Anomaly A market anomaly is a pattern, trend, or result in financial markets that doesn’t line up with what traditional financial theory says should happen. In plain English: it’s when the market behaves in a way that looks weird, inconsistent, or flat-out illogical—yet happens often enough that investors notice. Classic finance theory assumes markets are efficient, rational, and price assets perfectly based on available information...

What Is Bounded Rationality? Bounded rationality is the idea that people make decisions using limited information, limited time, and limited mental energy. Instead of finding the best possible decision, we settle for a decision that is “good enough.” The term was popularized by economist Herbert Simon, and it explains why real-world financial decisions often look messy, emotional, and inconsistent—because they are. In short: We don’t optimize. We simplify.

Definition of Hot Hand Fallacy The Hot Hand Fallacy is the belief that because someone has experienced success repeatedly in the recent past, they are more likely to continue succeeding in the future—even when outcomes are largely driven by chance. In simple terms: “They’re on a roll, so they can’t miss.”In finance, that mindset can quietly drain your wallet.

Definition of Gambler's Fallacy Gambler’s Fallacy is the mistaken belief that past random events influence future outcomes—even when each event is independent. In plain English: just because something has happened a lot lately doesn’t mean it’s “due” to change. This thinking shows up most famously in casinos, but it quietly sneaks into everyday financial decisions far more often than people realize.

Definition of Sunk Cost Fallacy The sunk cost fallacy is the tendency to continue investing time, money, or effort into something simply because you’ve already invested in it—even when walking away would be the smarter financial decision. A “sunk cost” is a cost that’s already been paid and cannot be recovered. The fallacy happens when past costs influence future decisions. In plain English: “I’ve already spent so much, I can’t quit now.”

What Is the Endowment Effect? The Endowment Effect is a behavioral finance bias where people place a higher value on something simply because they own it. In plain English: Ownership makes us emotionally attached, and that attachment inflates value in our minds. Once something becomes “mine,” logic quietly leaves the room and emotion takes the driver’s seat.

Definition of Home Bias Home Bias is the tendency for investors to heavily favor investments from their own country while underinvesting in international markets. In plain English: we like what’s familiar. We buy U.S. stocks, U.S. bonds, U.S. real estate… and quietly ignore the rest of the world—even though the global economy is much bigger than just us. From a comfort standpoint, that makes sense. From a wealth-building standpoint, it can quietly hold you back.

A Simple Definition of Status Quo Bias Status Quo Bias: The tendency to stick with your current financial choices—accounts, habits, subscriptions, investments—even when changing them would clearly benefit you. It’s not laziness. It’s wiring. Your brain interprets “same” as “safe,” even when “same” is sinking your wallet.

Definition of Recency Bias Recency Bias is the tendency to give more weight to the most recent information we’ve seen—while ignoring long-term data, history, and trends. In simple terms: what just happened feels more important than what usually happens. And in money decisions, that can get expensive fast.

Definition of Representativeness Representativeness is a mental shortcut (bias) where we assume something belongs to a certain category because it looks like a typical example—even when the actual data doesn’t support that conclusion. In plain English: “This reminds me of that… so it must be that.” Our brains love patterns. The problem? Sometimes we see patterns that aren’t really there—especially with money.

Definition of Availability Heuristic The availability heuristic is a mental shortcut where we judge how likely something is based on how easily examples come to mind—rather than on actual data or probabilities. In plain English: If you can remember it easily, your brain thinks it happens all the time. And in money decisions, that can get expensive.

What Mental Accounting Means (in plain English) Mental accounting is the habit of mentally dividing your money into different “buckets” based on where it came from or what you think it’s “for”—even though every dollar you own is actually just… a dollar. Your brain does this automatically because it wants the world to feel organized. But here’s the catch: Those mental labels can lead you straight into bad decisions, missed opportunities, and slower wealth-building.

What Cognitive Dissonance Means Cognitive Dissonance is the discomfort your brain experiences when you hold two conflicting beliefs at the same time — especially about money. You know you should budget……but you also want to believe you “deserve” that impulse purchase. You know your credit card balance is climbing……but you still believe you’re “good with money.” You know an investment is performing poorly……but you believe selling it would mean admitting you made a mistake.

What Prospect Theory Means (Plain English Version) Prospect Theory explains why people make decisions based on how choices are framed—especially when facing gains and losses. In short: - We hate losing more than we like winning. - We’re risk-averse with gains but weirdly risk-seeking with losses. - Our emotions often override the math.

Definition of Framing Framing is the way information is presented in order to influence how we perceive value and make financial decisions. The facts don’t change—only how those facts are described. But our brain reacts differently depending on the “frame.”

Definition of Confirmation Bias Confirmation bias is our natural tendency to search for, believe, and remember information that supports what we already think is true—while ignoring anything that challenges our opinion. When it shows up in money decisions, it can push us into bad investments, risky purchases, or just plain stubborn financial mistakes because we convince ourselves we’re already right.

A Simple Definition of Anchoring A behavioral bias where we fixate on an initial price, value, or piece of information and use it to make ongoing decisions—often leading to bad financial choices.