PSYCHOLOGYM37

Cognitive Biases and Narrative Risk

Learn how cognitive biases and market narratives can mislead investors, and how to stay grounded in reality.

Learning Goals

  • Identify key cognitive biases like anchoring, availability, and hindsight.
  • Understand how narratives inflate market bubbles.
  • Develop habits to challenge popular stories.

Core Concepts

Anchoring
Beginner

Investors anchor on a price they paid or a target price, even when new information changes the outlook.

Availability Bias
Beginner

Recent or dramatic events are over-weighted in decisions because they are easier to recall.

Narrative Risk
Beginner

A compelling story can drive prices higher than fundamentals justify, creating bubble risk.

Indian Market Context

IPO mania and stories about next-gen startups often attract retail capital, sometimes before the business model is proven.

Hands-On Calculators

Future Value Calculator
Future Value₹3,10,585

Gain: ₹2,10,585

Behavioral Insight

🧠 NARRATIVE ADDICTION: People crave coherent stories and can mistake them for evidence of future success.

From History

Cognitive Biases and Narrative Risk

The 2007-2008 China story in India led to large allocations in steel and commodities, which later crashed hard.

Take the Quiz

Module Quiz
Availability bias causes us to:
A strong narrative is proof a stock will outperform.
Anchoring bias makes investors: