Emotional vs Analytical Decisions

In emotionally charged market environments, for example, in a more reflexive mood, impulses are based more on greed or fear leading to panicked decisions. One example was during the great market crash when investors feared selling in a declining market and held on to their portfolio even as the underlying assets had not fundamentally changed, while in a bull market period, investors became irrationally optimistic that prices could only move upwards.
Reflective thinking calls for a relatively more analytical approach whereby investors are not easily swayed into hasty decisions but balance facts and long-term considerations calmly. Reflective thinking might better lead a person to rational decisions, although it is not impervious to biases. For example, over-confidence or the illusion of controlling events can also be in play even when reflective thinking is used; hence, people tend to underestimate specific risks or feel that they may be able to predict future movements in some markets.