The 12 Biases of Christmas: A Behavioral Finance Carol!

‘Tis the season for financial folly. Whether it’s overspending on glittering gifts, falling for year-end “deals,” or succumbing to Uncle Joe’s hot stock tips, we are as vulnerable as ever to cognitive biases during the holidays.

So, let’s don our behavioral finance caps—and sing through The 12 Biases of Christmas. 

On the first day of Christmas, my bias gave to me… Anchoring on one price. 

What it is: Anchoring happens when someone fixates on the first piece of information they hear—like a price tag.

Example: A $200 sweater marked “50% OFF!” makes $100 sound irresistible. Forget whether one actually needs it; the “discount” is anchoring their decision.

Tip: Re-anchor to goals, not fleeting deals. “The market’s down 20%” sounds scary until you remind them it’s up 100% over the past decade.

On the second day of Christmas, my bias gave to me… Two vivid stories 

Availability Bias

What it is: People overestimate the importance of what’s easy to recall.

Example: Uncle Joe’s story about his winning stock sticks—so now your client thinks everyone is striking gold.

Tip: Counteract vivid stories with balanced evidence. Share real examples of both successes and failures to give perspective.

On the third day of Christmas, my bias gave to me… Three herd decisions 

Herd Mentality

What it is: Following the crowd instead of critical thinking.

Example: “Everyone’s buying smart gadgets this year—I should too!”

Tip: Herds rarely graze wisely. Fads come and go, but goals endure.

On the fourth day of Christmas, my bias gave to me… Four bold predictions 

Overconfidence Bias

What it is: Overestimating one’s knowledge or abilities.

Example: “I know exactly when to sell this stock before year-end!” Spoiler: They don’t.

Tip: Revisit data that highlights how staying invested often outperforms market timing. A Dalbar study found average investors consistently underperform due to overconfident decisions.

On the fifth day of Christmas, my bias gave to me… Five golden things! 

Present Bias

What it is: Preferring instant gratification over long-term rewards.

Example: “Who needs retirement savings? I’m taking the family to Aspen!”

Tip: Explore the trade-offs. “This trip costs $X now, but saving it could add $Y to retirement.”

On the sixth day of Christmas, my bias gave to me… Six losses hurting 

Loss Aversion

What it is: The pain of losses feels worse than the pleasure of gains.

Example: Many people refuse to sell underperforming investments because they can’t bear to “realize” the loss—even if reallocating makes sense.

Tip: Frame losses as opportunities. “Selling now lets us harvest losses for tax benefits and position you for growth.

 On the seventh day of Christmas, my bias gave to me… Seven costs sunk 

Sunk Cost Fallacy

What it is: Sticking with something because of prior investments.

Example: “We can’t skip the annual $10K holiday party—look at all we’ve spent in past years!”

Tip: Guide decisions based on future value, not past costs. “Is this party adding value, or could funds go toward goals?”

On the eighth day of Christmas, my bias gave to me… Eight accounts dividing 

Mental Accounting

What it is: Treating money differently depending on its source or “label.”

Example: A year-end bonus feels like “fun money” for a luxury splurge instead of savings.

Tip: Allocate windfalls intentionally: 50% for goals, 50% for enjoyment.

On the ninth day of Christmas, my bias gave to me… Nine recent headlines 

Recency Bias

What it is: Overweighting recent events.

Example: “The market’s down! I’m pulling everything into cash!”

Tip: Reframe. “Short-term drops happen, but markets historically trend up over time. Let’s focus on your 10-year horizon.”

On the tenth day of Christmas, my bias gave to me… Ten beliefs confirmed 

Confirmation Bias

What it is: Seeking out information that supports existing beliefs and ignoring contrary evidence.

Example: We tend to only read articles predicting a market rebound because we WANT IT TO REBOUND!

Tip: Challenge assumptions by presenting balanced perspectives. Play devil’s advocate when necessary.

 On the eleventh day of Christmas, my bias gave to me… Eleven years unmoving 

Status Quo Bias

What it is: Preferring things as they are instead of making changes.

Example: “I’ll rebalance my portfolio next year… again.”

Tip: Schedule reviews to nudge clients (or yourself) toward proactive decisions.

On the twelfth day of Christmas, my bias gave to me… Twelve frames reframing 

Framing Effect

What it is: Decisions are influenced by how information is presented.

Example: “Saving 10% feels small.” Reframed: “Over 30 years, saving 10% could add $500K to your retirement.”

Tip: Frame decisions positively and with clear outcomes—make the value obvious.

In this season of joy, togetherness—and cognitive traps!. By understanding the biases behind some of our decisions, you can make choices that serve your goals, not just your impulses.

So, as you wrap up your year, sing it loud:

“May your season be bright, your plans be tight, and may all your goals align just right!”

For more about my work, visit me at CharlesChaffin.com or our suite of programs for advisors, including the new Money & Risk Inventory™ (MRI™) at DrCharles@PsychologyofFinancialPlanning.com.

References

 Iyengar, S. S., & Lepper, M. R. (2000). When choice is demotivating. Journal of Personality and Social Psychology.

Kahneman, D. (2011). Thinking, Fast and Slow.

Tversky, A., & Kahneman, D. (1991). Loss aversion in riskless choice.

Thaler, R. H. (1999). Mental accounting matters. Journal of Behavioral Decision Making.