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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.

Definition of Overconfidence Overconfidence (in finance) is a behavioral bias where investors believe they have better knowledge, sharper instincts, or more accurate predictions than they actually do. This confidence leads them to take bigger risks, ignore danger signs, and make decisions based on gut feelings instead of solid strategy.

Definition of Loss Aversion Loss aversion describes our natural tendency to hate losing money more than we enjoy gaining money. In fact, most people feel the pain of a loss about twice as strongly as the joy of a gain. That emotional imbalance leads many folks to make defensive, fearful, or flat-out irrational money decisions.

Definition of Behavioral Finance Behavioral finance is the study of how our emotions, habits, and quirks influence our financial decisions. In a perfect world, people would invest, save, and spend based on facts and logic. But we don’t—we’re human. We tend to follow the crowd, panic when markets dip, overspend when we’re stressed, and cling to bad investments because we “feel” they’ll bounce back.