Recognise the behavioural biases that affect asset allocation and propose ways to counter them

Loss aversion leads investors to hold too little risky exposure or to refuse to realise losses; goals-based framing that secures essential needs first can help. Illusion of control encourages concentrated active bets; the global market portfolio as a baseline counters it. Mental accounting treats each pot of money separately and ignores correlations across accounts; goals-based methods can use it constructively while checking the total. Recency bias extrapolates recent returns and drives procyclical changes; a formal rebalancing policy helps. Framing bias makes choices depend on how options are presented; show outcomes in several forms, such as returns and loss probabilities. Availability bias favours familiar or memorable assets, producing home bias; a broad, rules-based opportunity set counters it.