In its Third Quarter 2014 publication of Alternative Thinking, AQR discusses how our behavioral biases as investors can affect potential returns. The entire article is an excellent read and focuses on return chasing, under-diversification, and comfort-seeking while selecting investments.

Two particular biases of institutional investing from the publication that are interesting to highlight are:

1) Strategic asset allocation decisions tend to chase returns, resulting in underperformance

 

2) Firing managers for underperformance and hiring managers that have recently outperformed can result in a loss