BEHAVIOURAL FINANCE

Cognitive Dissonance Bias

RESHMA 2027153

MISSION VISION CORE VALUES

CHRIST is a nurturing ground for an individual’s Excellence and Service Faith in God | Moral Uprightness
holistic development to make effective contribution to Love of Fellow Beings
the society in a dynamic environment Social Responsibility | Pursuit of Excellence
 CHRIST
Deemed to be University

Class Room Activity

Answer ‘Yes’ or ‘No’

 Our government should spend less money on nuclear weapons and more
on helping citizens
 Causing harm or inflicting pain on animals is cruel
 Cheating in exams is unethical

Answer ‘Yes’ or ‘No’

 Do you personally convey your feelings to the government?

 Do you consume meat or dairy products?
 Have you ever cheated in an exam?

Excellence and Service

 CHRIST
Deemed to be University

Cognitive Dissonance

 Imbalance due to conflicting beliefs, attitudes or behaviours

 Relieving Mental discomfort by altering cognition and

rationalisations

 Basis for all belief perseverance biases

 Dissonance in decision making:
 Selective Perception

 Selective Decision Making

Excellence and Service

 CHRIST
Deemed to be University

Diagnostic Testing

A) Research and Revaluate current decision (Model A)

B) Satisfied with decision (Model A)

C) Contemplate doing research on Model B resulting in unease

 Option C shows propensity for cognitive dissonance

Excellence and Service

 CHRIST
Deemed to be University

Festinger’s Experiments

 Observations of dissonance amongst cult members

 Peg Experiment

Excellence and Service

 CHRIST
Deemed to be University

Cognitive Dissonance and Investments

● Investors can hold onto losing or “struggling” positions

● Selective perception resulting in herd mentality
● Investors may believe “It’s different this time” and continue
earlier behaviours
● Goetzmann and Peles’ study of Mutual Fund Investors found
○ Investing more in high performing funds

○ Inability to accept new and contradictory evidence

○ Doubling down on losing investments

Excellence and Service

 CHRIST
Deemed to be University

Response to Cognitive Dissonance

 Altering Beliefs
 Altering Actions
 Altering perceptions of relevant
actions (Attitudes)

Excellence and Service

 CHRIST
Deemed to be University

Excellence and Service

 CHRIST
Deemed to be University

Thank You

Excellence and Service