Herd Mentality: The Imitative Crowd
Herd mentality is a phenomenon whereby people tend to follow the crowd without really knowing why they are doing it.

Impact on Investing: Investors driven by herd mentality often jump into investments because everyone else is doing it. This leads to speculative bubbles, where assets become overinflated in price due to mass buying, regardless of their actual value. Classic examples include the dot-com bubble of the late 1990s and the housing bubble of the mid-2000s. When the bubble bursts, many investors face significant losses.

Anchoring: Relying Too Much on Initial Information
Anchoring is when an investor focuses on an initial piece of information, for example, the price at which they bought an investment, and allows it to unduly influence future decisions.

Impact on Investing An investor may purchase a stock at $100 per share and refuse to sell the stock even if it decreases to $50 per share; they are anchored to their original purchase price. They believe it will return to that value or higher, regardless of a change in market conditions or the business fundamentals.

Overconfidence Bias: Believing You Know More Than You Do
Overestimation of one's ability to predict market movements or to pick a winning investment is an example of overconfidence bias.

Impact on Investing: Overconfident investors will take too much risk, make excessive trades, or ignore relevant information. An overconfident investor believes in his or her ability to time the market or select the "perfect" stock, leading to poor decision-making and underperformance. It also leads to an avoidance of diversification, assuming that the chosen stocks will always outperform.

Loss Aversion: Fear of More Loss than Enjoyment of Gain
Loss aversion refers to the best-documented psychological phenomenon wherein people suffer from loss much more than they enjoy a similar-sized gain. The pain of losing $100 hurts much more than the pleasure of gaining $100.

It makes the investor hold onto losing investments for too long, hoping they will recover, instead of cutting losses and moving on to better opportunities. The other consequence is that the investor might be overly cautious and avoid any higher-risk but potentially more rewarding assets.

The Two Main Emotions in Investing: Fear and Greed
Two of the most powerful emotions influencing investment behavior are fear and greed.

Fear : Fear can cause investors to act rashly, such as selling off stocks in a panic, when markets are down or there is uncertainty (such as during a financial crisis). Because the market may eventually rebound, this practice, known as panic selling, frequently locks in losses.

Greedness : Bull markets can easily create overly exuberant and FOMO-driven investors. As such, they begin to take unnecessary and excessive risk, putting all the money they have in areas that have become overpriced and speculative in nature. Blindly enticed by fantasies of quick riches, few investors think about the potential cost of that risk.

Main factors of How Emotion Affects Of Financial Decision.

Investing is frequently seen as a logical activity that is supported by facts, analysis, and reasoned judgment. Emotions, however, are very important in financial decision-making and can occasionally take precedence over logical thinking. Making more intelligent and profitable financial decisions requires an understanding of how emotions affect investing. Here are some key considerations about psychological biases that investors need to be aware of and how emotions impact financial decisions.