Question

Even if behavioral biases do not affect equilibrium asset prices, why might it still be important for investors to be aware of them

Answer 1

Answer:

Behavioral biases might not affect equilibrium asset prices in the sense that behavioral biases might contribute to the success of technical trading rules as prices gradually adjust towards their intrinsic values and the actions of arbitrageurs might move security prices towards their intrinsic values.

But it is very essential for investors to be aware of thebiases because either of the above scenarios might create the potential for excess profits even if behavioral biases do not affect equilibrium prices and an investor should be aware of his personal behavioral biases, even though the biases do not affect equilibrium prices, so as to avoid some of these information processing error.

Explanation:

Biases are said to be simply as overconfidence, confirmation bias, illusion of control. Example also is the Behavioral biases