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When someone perceives a dividend dollar differently than a capital gains dollar, which cognitive bias are...

When someone perceives a dividend dollar differently than a capital gains dollar, which cognitive bias are they experiencing?

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Answer #1

They are experiencing Mental Accounting Bias.

Dividends are perceived as an addition to disposable income, while capital gains are not. People tend to be overconfident in their predictions of the future. This overconfidence occurs when someone perceives their abilities to be greater than they actually are.

In mental accounting, people treat assets as less fungible than they really are. Even investors are influenced to this bias when they view recent gains as disposable ,that can be used in high-risk investments.

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