The behavioral vocabulary of IM7 Intelligence.
Every principle links to the essays that study it in the wild.
Action Bias
When waiting feels uncomfortable, people can prefer taking action even when additional evidence does not justify intervention. In trading, quiet markets can make inactivity feel unproductive and encourage forced decisions.
Patt & Zeckhauser (2000)
Ambiguity Aversion · Ellsberg (1961)
People often prefer outcomes with better-defined probabilities over outcomes involving uncertain or poorly specified probabilities. Partial clarity can therefore produce disproportionate psychological relief even when important uncertainty remains.
Anchoring
The mind clings to the first number it sees, then judges everything else relative to it.
Tversky & Kahneman, 1974
Anchoring Bias
Traders can give disproportionate weight to a vivid recent event or reference point, causing subsequent market information to be judged relative to that anchor instead of evaluated on its own merits.
Availability Heuristic
The easier an outcome is to recall, the more likely it feels — recency and vividness distort probability.
Tversky & Kahneman, 1973
Behavioral Finance
The sunk cost effect is the tendency to continue a course of action because resources have already been invested in it, even when those past costs cannot be recovered and should not determine the best decision from the present moment forward.
Arkes & Blumer, 1985
Belief Perseverance
Once a market view forms, it survives long after the evidence that created it is discredited.
Ross, Lepper & Hubbard, 1975
Belief Perseverance – Ross, Lepper & Hubbard, 1975
Once people normalize the warning, they continue defending their original belief even as new evidence accumulates against it.
Belief Perseverance is the tendency to maintain an initial belief even after encountering information that weakens or contradicts it [1].
Belief perseverance is the tendency to maintain an existing belief even after new evidence weakens or contradicts it. In financial markets, traders often continue defending an original thesis because changing their minds feels more psychologically costly than remaining committed to it.
Ross, Lepper, & Hubbard (1975)
Category Contagion
Category contagion occurs when fear from one connected platform, product, or system is mentally transferred to the entire category. The association feels informative even when the underlying systems and risks are materially different.
Confirmation Bias
Investors seek out and remember evidence that supports the position they already hold.
Wason, 1960
Confirmation Bias · Wason, 1960
Confirmation bias causes people to favor evidence that supports what they already believe while dismissing evidence that challenges it. After Bitcoin broke support, traders focused on the downside continuation story and ignored the reclaim that showed the breakdown had not yet been accepted.
Herd Behavior
Individuals abandon private information to mimic the crowd, amplifying trends and reversals.
Banerjee, 1992
Hindsight Bias
After an event occurs, people tend to perceive it as having been more predictable beforehand than it actually was, which distorts memory of prior uncertainty and decision quality.
Loss Aversion
Losses hurt roughly twice as much as equivalent gains feel good, distorting risk-taking under threat.
Kahneman & Tversky, 1979
Mental Accounting
Money is treated differently depending on the mental "bucket" it lives in, breaking fungibility.
Thaler, 1985
Opportunity Cost
The value of a decision is defined not only by what it earns, but by what it prevents you from doing.
Buchanan, 1969
Outcome Bias · Baron & Hershey (1988)
Outcome bias is the tendency to judge the quality of a decision by how it ultimately turned out rather than by the information, reasoning, and process available when the decision was made.
Overconfidence
Traders overestimate the precision of their forecasts, leading to over-trading and under-diversification.
Odean, 1998
Premature Certainty
Traders can mistake a strong resolving move for sufficient evidence that a market thesis has been confirmed, allowing confidence to increase faster than structural validation.
Bitcoin behavioral-finance hero image illustrating a breakout above $80,000 after several days of compression, with traders shifting from impatience to urgency while the market still tests whether the level can achieve sustained acceptance.
Premature Confirmation
Traders can increase confidence in a developing thesis before the available evidence is strong enough to justify it. After a decline, the simple absence of additional pain can make stabilization feel like confirmation that a bottom or recovery is forming.
Premature Extrapolation
Traders can project the newest market move forward as if it establishes the next state, causing short-term evidence to receive more predictive authority than the broader structure justifies.
Price-Induced Safety
As recent price performance improves, perceived risk can fall faster than underlying market risk, causing traders to become more comfortable with exposure after the asset has already appreciated.
Recency Bias
Recent information receives disproportionate weight in judgment, causing traders to treat the latest price move as more representative of future conditions than the broader evidence supports.
Recency Override
The newest emotionally significant market event can displace older evidence from attention, causing traders to overweight the latest candle, headline, or macro release when forming their next decision.
Relief Bias
Traders can interpret the removal of immediate pain as positive evidence, causing stabilization or a strong recovery candle to feel like confirmation even while the larger structural test remains unresolved.
Salience Bias
Salience bias causes traders to overweight vivid, emotionally powerful market events while underestimating the cumulative evidence provided by quieter price action. A single dramatic candle often shapes conviction more than the many smaller candles that reveal whether the move is actually sustainable.
Selective Attention + Confirmation Bias
Traders overweight information that supports an existing thesis while discounting contradictory evidence. In ambiguous markets, this can cause conviction to increase faster than the quality of the underlying evidence.
Broadbent (1958); Nickerson (1998)
Status Quo Bias
People prefer to leave things as they are, even when change would clearly improve outcomes.
Samuelson & Zeckhauser, 1988
The Transaction Is Not the Thesis
A purchase or sale explains what happened—not why it happened. Intelligent investors investigate the motive before accepting the narrative.