Regret aversion bias can be adjusted by

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Regret aversion bias can be adjusted by diversification. Diversification has the offsetting effect to the drop in value of a particular stock in the portfolio. When the share price of a stock in the portfolio drops, the financial loss is offset by the gain in other stocks in the portfolio. Diversification has the similar offsetting function to the regret aversion bias. Mr. J may feel regret when one of the stocks in the portfolio he selected is not performing well. However, this feeling of regret can be offsetting by the good performance of other stocks in the portfolio because Mr. J can get comfort from the good performance stocks and reduce the emotional pain of regret. Besides, Mr. J needs to have a long term view and always keep in mind his long term financial goal. Mr. J can reduce his concern on the short term loss and return of the stocks in his portfolio with a long term view. Therefore, it reduces the severity of the emotional pain of regret and the opportunities of Mr. J to feel regret because Mr. J can eventually achieve his long term financial goal with a well-diversified portfolio that fit his risk characteristics. Mr. J will see the achievement of his long term financial goal as his final success. Overconfidence bias can be adjusted by recording and reviewing his trading history. Mr. J can easily track the performance of his investment, his trading frequency and calculate the return from his trading activities through trading history. Instead of only remember and concern to the winning experience and become overconfidence, Mr. J can notice his losing trades and compare the actual return to his expected return. It helps Mr. J to realize that his overconfidence has caused him to overestimate the upward potential of the investments. Besides, it also helps Mr. J
to realize the harm of excessive trading to his portfolio’s return. Excessive trading will not improve the performance of the portfolio but increase trading cost and exposure to unnecessary risks and reduce the portfolio’s return. Next, Mr. J can learn the mistakes that he performed in the past by regularly reviewing his trading history. Therefore, Mr. J can improve from his mistake and remind himself not to overconfidence in his decision making process. Self-control bias can be adjusted by setting up a saving plan and complying to the saving plan. Mr. J finds himself hard to save for the future and tends to spend all of his income. Therefore, Mall can help Mr. J to set up a saving plan that forces Mr. J to retain part of his income for saving. For example, Mr. J can separate out 10% of his income for saving before any other consumption. Besides, Mall can advise Mr. J to be rational on his spending and cultivate a good spending habit. For example, Mr. J may not necessarily need to choose all the luxury options of his car but choose some of it which is more important and provides larger utility than other options. Mr. J is required to have the awareness to not spend on the expense of future savings.

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