Seeing your portfolio dip can lead to costly mistakes.
John Forlines III, a professor of economics at Duke University, says that humans are hardwired to rely on certain behaviors when making decisions. Understanding these tendencies, especially when there are large sums of money on the line, will help you make better investments.
The rules, as Forlines calls them, are heuristics. And they are used to solve problems.
The biggest mistake investors often make is overvaluing recent events, according to Forlines. This tendency is called availability bias and breaks down into two categories: vivid and recent. When major events fall into one of those two categories, they are much more likely to skew your perceptions.
Check out this video to learn more rules you can apply to investing and to see how you can avoid falling victim to your instinctual ways of thinking.
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Disclosure: NBCUniversal and Comcast Ventures are investors in Acorns.