Overview
The trading decision is a decision, like any other decision. An agent faces a set of choices with possible uncertainty surrounding each alternative, and must make a choice based on their expectations and preferences.
Decision making theory outlines the process of making decisions, including optimizing choices, as well as the pitfalls that can occur when making choices.
Bias
Like any decision, trading decisions can fall prey to a set of behavioural biases. The bias' that are common to trade decisions include:
- Anchoring - means that traders may be biased towards the current price when tring estimate a true theoretical price for an asset.
- Confirmation Bias
- Availability Bias