Justin Kern

When it comes to investing, even the most savvy of us fall prey to bias and emotional trades. So what triggers should you watch for?

Geopolitical events. Elections. Fear of a recession. Panics..

Any one of these is enough to keep the average investor on edge with an itchy buy/sell trigger finger. But a growing number of psychological and financial theories called "behavioral finance" is showing that during uncertain times, it's more important than ever to rely on available data and put aside emotion-fueled investing. This field of research, which marries economics with biology and psychology, studies certain types of investing decisions—including those made on emotional or speculative grounds, often made hastily without all the facts or because of what others are doing.

Behavioral finance theory can be used to help investors develop a greater understanding of how their minds work and to show them that their investment decisions shouldn't be driven by emotion, but rather by a coherent strategy. The goal is not to make them smarter, but to make them aware of basic human psychological shortcomings so they are less likely to undertake counterproductive actions. Or—at the very least—not to make snap judgments every time there is a potential trigger incident.

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