Curriculum·S208 Behavioral Finance and the Operator·about 31 min
The bias catalog, applied
By the end of this lesson you can
- →Name the six biases that produce most measurable damage in this asset class, in their operational form
- →Explain why knowing a bias does not reduce it, and what does
- →Compute the cost of the disposition effect from measured data
- →Attach a specific pre-committed rule to each bias rather than an intention to resist it
Sophomore · enrolled learners
This lesson opens with The disposition effect, measured.
- What happened
- Terrance Odean examined trading records from 1987 to 1993 for 10,000 accounts at a large discount brokerage and found that investors realized gains far more readily than losses. The proportion of gains realized was 0.148 against a proportion of losses realized of 0.098, meaning winners were sold at roughly one and a half times the rate of losers, and the tendency strengthened with the size of the gain or loss. The performance consequence was measured rather than inferred: the winners investors sold went on to return about 3.4 percentage points more over the following year than the losers they kept.
- The decision point
- Nobody in that sample decided to sell their best holdings and keep their worst. Each individual sale was a reasonable-looking decision about one position, made for a defensible reason, and the pattern only exists in aggregate. A bias is not a mistake you can catch in the moment; it is the shape your reasonable decisions make when you look at enough of them.
What you will be able to answer
- →What is the disposition effect, in measured terms?
- →Why does knowing a bias not reduce it?
- →What reduces a bias?
- →What is the operational form of loss aversion here?
Orientation and Year One are open: anyone can read them without an account. From Year Two onward the lessons are for enrolled learners, because progress through the later years only means anything if it is tracked against a record.
It is free. We do not sell the list and there is nothing to buy at the end of it.
Sources and review
- https://onlinelibrary.wiley.com/doi/abs/10.1111/0022-1082.00072
- https://faculty.haas.berkeley.edu/odean/papers%20current%20versions/areinvestorsreluctant.pdf
- https://onlinelibrary.wiley.com/doi/abs/10.1111/0022-1082.00226
- https://www.dalbar.com/PressReleases/doc/QAIB2024_PR.pdf
Confidence high·Volatility low·Reviewed 2026-08-06·Owner unassigned
Contested
Odean's study covers US equity accounts from 1987 to 1993. The disposition effect has been replicated widely across markets and instruments, and its magnitude in crypto specifically has not been established by comparable work. Present the mechanism as well supported and the crypto magnitude as unmeasured.
Some later work argues portions of the disposition effect can be rational under specific tax and belief conditions. The lesson's practical claim is narrower than the theoretical debate: that the pattern exists, is costly on the measured data, and is invisible from inside a single decision.