What adverse selection is — bad risks are more likely to seek insurance than good risks

What moral hazard causes — people take more risk when they don't bear the full consequences

Moral hazard: Insurance coverage leads to riskier behavior due to reduced personal consequences

What Buffett means by 'Only when the tide goes out do you discover who's been swimming naked'

Exposes investors' lack of prudent risk management

What recency bias does — overweighting recent events in investment decisions

Recency bias leads investors to prioritize recent market trends over long-term historical data

What arbitrage pricing theory (APT) differs from CAPM — allows multiple systematic risk factors

APT considers multiple risk factors, unlike CAPM's single market risk factor

What anchoring does in investing — the purchase price biases your sell decision

Anchoring bias causes investors to base sell decisions on initial purchase price rather than current market value

What the disposition effect causes — investors sell winners too early and hold losers too long

The disposition effect leads to premature selling of profitable investments and delayed selling of underperforming ones