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Article Archive: Behaviour Lucky vs. repeatable 04/14/24   Behaviour "In business and investing, you want to learn the big lessons about why things behave the way they do without assuming the past is a direct guide to the future, because it's not - most of the details are not repeatable." Keep your investment plan on track 02/03/24   Behaviour "When you don't watch the market every day, you can finally see with unquestionable clarity that what you would have expected to happen didn't. The unexpected did." Happiness research 02/03/24   Behaviour "From meditation to smiling, researchers take a second look at studies claiming to reveal what makes us happy." All work and no play 12/23/23   Behaviour "A decade ago, a team of researchers led by the psychology professor Terry Hartig examined the effect of vacation on people’s demand for antidepressants â€" but they took an unusual approach. As well as asking whether taking a vacation made people feel less in need of antidepressant medication â€" it does â€" they also found that the more people were on holiday simultaneously, the happier everyone was." Respecting delusions 12/23/23   Behaviour "Learn enough from history to bear reality patiently, and respect one another’s delusions." When you start 11/26/23   Behaviour "investors who opened accounts during a boom retain significantly higher equity allocations even decades later. The median investor who started out in 1999, as the dotcom bubble swelled, still held 86% of their portfolio in stocks in 2022. For those who began in 2004, when memories of the bubble bursting were still fresh, the equivalent figure was just 72%." Taking charge 10/22/23   Behaviour "I understand such handwringing, but I'm not inclined to join in. I've spent my entire life hearing that things have never been worse - and yet somehow they keep getting better." Superlinear returns 10/21/23   Behaviour "Teachers and coaches implicitly told us the returns were linear. "You get out," I heard a thousand times, "what you put in." They meant well, but this is rarely true. If your product is only half as good as your competitor's, you don't get half as many customers. You get no customers, and you go out of business." Avoid stress 10/14/23   Behaviour "Everyone who has ever invested money knows that financial markets can induce stress. Nobody likes to see their investments make losses but when they do, the pressure builds to recover these losses. But does this stress change investment behaviour? I don't think that any reader will be surprised when I say that the answer is yes." Between bold and reckless 10/07/23   Behaviour "If success requires taking risk that could easily turn into failure, and the line between the two is nearly invisible in real time, I want to learn from people who accidentally stepped over the line and lived to tell the tale. Companies that survived deep recessions. Investors who survived bear markets. Products that flopped, were redesigned, and then worked." House of cards 10/07/23   Behaviour "what intrigues me is why people end up with horrifying card balances. On the way to five-figure or six-figure card debt, you have to imagine there's a moment or two when cardholders think, 'Maybe this is getting out of control. Maybe it's time to stop spending.' And yet they don't." Fabricating data 10/01/23   Behaviour "there are two different people independently faking data on the same paper. And it's a paper about dishonesty." Stories vs. intelligence 09/10/23   Behaviour "Stories are indispensable, nourishing and delightful. They are also attacks on the rational immune system." Be suspicious of stories 09/10/23   Behaviour "Tyler Cowen talks about stories" [video] Respect and admiration 09/10/23   Behaviour "Virtually no one in this exercise would think about their obituary mentioning how much horsepower their car has, how many square feet their home is, or how much they spent on jewelry and clothes." How to decide 09/03/23   Behaviour "To make sound judgments, some amount of information is necessary. But beyond a certain point, gathering more data doesn't always lead to better decisions. In fact, it can lead to worse results." Big decisions 08/20/23   Behaviour "Biographer Alice Schroeder writes that, above all, Buffett's motivation for buying more of the company's stock was to stick it to the CEO who tried to screw him out of twelve cents per share." Courage required 07/23/23   Behaviour "Do not underestimate the courage it takes to hold stocks during the worst of times, let alone to purchase more. Holding and buying assets that everyone else is running from takes more fortitude than many investors can manage." Rich and anonymous 07/23/23   Behaviour "They figured out what so many other people fail to recognize: The way you maximize enjoying your money is by eliminating social debt. They had total freedom, privacy, and independence." Investment junk food 05/28/23   Behaviour "Easy and instant access to information is often framed as a major advantage to present day investors compared to their predecessors, but if anything we suffer from a profound information disadvantage. The benefit of improved knowledge is easily overwhelmed by the behavioural challenge of dealing with an incessant torrent of noise. Much of what investors consume is little more than investment junk food, tempting us into decisions that feel good in the moment but come with a material long-term cost." Outperformance, please 05/21/23   Behaviour "What's the difference between fund 1 and fund 2 that makes fund 2 so much more attractive? I can tell you it isn't the return because the two funds are designed to have exactly the same return. The key difference between fund 1 and fund 2 is that fund 1 is a frequent underperformer that sometimes has a large outperformance, while fund 2 is a frequent outperformer but sometimes suffers large underperformance." Physical finance 05/14/23   Behaviour "I have to say I remain a bit skeptical" Financial freedom 05/07/23   Behaviour "Financial freedom isn't a seven- or eight-figure portfolio balance. Instead, it's knowing we have enough to pay for the life we want. It's the ability to enjoy two great luxuries - spending our time as we wish and not having to think about money." Memory and probability 04/02/23   Behaviour "Behavioral economists connect the way our memory works to how we make probability judgments" No satisfaction 03/25/23   Behaviour "But here's what I found most intriguing: While the authors found that more money typically boosts happiness, they also observe the relationship between income and happiness 'is weak, even if statistically robust.' In fact, they go on to note that 'the difference between the medians of happiness at household incomes of $15,000 and $250,000 is about five points on a 100-point scale.'" Spendthrift propaganda 03/05/23   Behaviour "My purpose in touching on the lives of these two women is to point out that they never enjoyed spending their wealth." Boo! Getting vs. staying wealthy 12/04/22   Behaviour "Good investing is not necessarily about making good decisions. It's about consistently not screwing up." How the wealthy invest 11/13/22   Behaviour "If we can learn anything from how the wealthy invest, it's that they do it in a lot of different ways. Some of them own stocks, bonds, and real estate, while others utilize a wide range of alternatives. And though the data shows that wealthier people tend to own more alternatives, this doesn't mean that they've abandoned traditional asset classes. Try not to forget that the wealthiest 10% of Americans own nearly 90% of all U.S. stocks" Before jumping 11/12/22   Behaviour "If you've learned in 2022 that your risk tolerance is far lower than you imagined, try mightily to hang tough until the stock and bond markets recover." Telling tales 10/23/22   Behaviour "Accepting new ideas is often difficult, but it can be especially hard when there's no precedent. In managing our personal finances, we can't plan for everything, but it's important not to dismiss possibilities just because they seem improbable." Hold opinions loosely 10/16/22   Behaviour "If it's difficult to know where any one company is going, it's even more difficult to know where the overall economy is headed. We've seen this in living color over the past few years. At least five events couldn't possibly have been predicted, no matter how much research an investor had done." MBAs vs billionaires 09/24/22   Behaviour "Let's assume, just for the sake of argument, that MBAs want to get rich. Let's also assume that, in figuring out how to get rich, they should probably look at how the richest people in the country - the billionaires - made their fortunes. If we're right in that second assumption, then MBAs are not making optimal career decisions." The impact of uncertainty on behaviour 09/04/22   Behaviour "Unfortunately, for those investors who sell and get out of the market 'just until things become clear again' (investors begin to treat equity investing again as risk instead of uncertainty), there is never an 'all clear' signal that will let them know it is safe to buy again." Choosing happiness 09/04/22   Behaviour "It strikes me that hedonic happiness usually comes with a higher price tag, while eudaimonic happiness involves a greater investment of time. If we go to a lavish restaurant, we'll get hedonic happiness - and a big bill at the end. But if we decide to learn the piano, we may enjoy long-lasting eudaimonic happiness, but the cost will be a hefty commitment of time." Getting to happy 08/07/22   Behaviour "If you have some wealth, how can you use it to maximum advantage and avoid the kind of heartache experienced by the Vanderbilts, the du Ponts and others?" The pitfalls of analysis paralysis 08/01/22   Behaviour "When making decisions, we spend too much time choosing between options with roughly equal utility." A tale of three acquisitions 07/24/22   Behaviour "The right culture, the highest and best culture, is a seamless web of deserved trust. Not much procedure, just totally reliable people correctly trusting one another." Little ways 07/22/22   Behaviour "If you find something that is true in more than one field, you.ve probably uncovered something particularly important. The more fields it shows up in, the more likely it is to be a fundamental and recurring driver of how the world works." Wealthy vs. wealthier 07/10/22   Behaviour "I think for a lot of people the process of becoming wealthier feels better than having wealth." Think outside the portfolio 06/24/22   Behaviour "Following a year of high inflation, U.S. bonds significantly underperformed over the next three years when compared to their median performance in all other three year periods" Trying too hard 05/23/22   Behaviour "A truth that applies to almost every field is that it's possible to try too hard, and when doing so you can get worse results than those who knew less, cared less, and put in less effort than you did." Loss aversion across the ages 04/24/22   Behaviour "Younger people aged 18 to 24 exhibit a loss aversion coefficient somewhere between 3 and 4 as do people aged 65 and over. But people in the midst of their working lives (aged 35 to 54) tend to have much lower loss aversion, somewhere between 1 and 2." Sick and tired 04/24/22   Behaviour "More money, it seems, hasn't bought happiness. One reason: We care less about our absolute standard of living, and more about how our financial lot in life compares to that of others." The mullet discount 04/10/22   Behaviour "Our main concern with TSYS wasn't its business or financials - it was its valuation. We couldn't understand why it sold at such an attractive valuation. And then it hit me while listening to one of their quarterly conference calls. TSYS suffered from the mullet discount" Managing money and marriage 04/10/22   Behaviour "If you want to maximize your chances of happiness and togetherness, merge your finances. That's the upshot of a paper recently published in the Journal of Personality and Social Psychology, which found that joint financial resources are more likely to lead to greater relationship stability." Preserve your mental capital 03/20/22   Behaviour "if you need to withdraw $50,000 per year, I'd suggest maintaining a minimum $250,000 to $350,000 outside of stocks at all times." In case you're wrong 03/19/22   Behaviour "Because of this association with Graham and Klarman, the notion of margin of safety is seen mostly as a concept within the limited domain of investment analysis - and, even more narrowly, within the domain of value investing. It is, however, an idea that I think is more broadly applicable within personal finance." Low expectations 03/19/22   Behaviour "The first rule of a happy life is low expectations. If you have unrealistic expectations you're going to be miserable your whole life. You want to have reasonable expectations and take life's results good and bad as they happen with a certain amount of stoicism." Death of the marshmallow test 02/21/22   Behaviour "Following the Bing children into their 40s, the new study finds that kids who quickly gave in to the marshmallow temptation are generally no more or less financially secure, educated or physically healthy than their more patient peers. The amount of time the child waited to eat the treat failed to forecast roughly a dozen adult outcomes the researchers tested, including net worth, social standing, high interest-rate debt, diet and exercise habits, smoking, procrastination tendencies and preventative dental care, according to the study published in the Journal of Economic Behavior and Organization." 7 habits that lead to happiness in old age 02/20/22   Behaviour "Happiness tends to decline throughout young adulthood and middle age, bottoming out at about age 50. After that, it heads back up again into one's mid-60s. Then something strange happens. Older people split into two groups as they get old: those getting much happier, and those getting much unhappier." Assured misery 12/05/21   Behaviour "So you can move the needle a lot by focusing on what not to do in life." An odd side quest 11/21/21   Behaviour "You can tell when someone knows their main quest because of the way they carry themselves. The way they use their time. The arguments they stay out of. The long stretches during which you have no idea where they are or what they're up to." When cash is king 11/14/21   Behaviour "for ordinary investors, the moral is clear: To prosper, one needs industrial quantities of patience, cash and courage - in that order." Investing lessons from the stoics 11/14/21   Behaviour "A central concept of stoic philosophy is negative visualisation. By regularly reflecting on what could go wrong - losing your job, getting ill, even death - you will be more prepared for bad outcomes. Negative visualisation is equally powerful in business and investing." Never too late 10/24/21   Behaviour "Maybe you have been procrastinating on something that you know deep down you need to change. Maybe you haven't had the courage to take the next step. But I'm telling you, that you can change whether you believe it or not." The new fear and greed 10/24/21   Behaviour "All through time, people have basically acted and reacted the same way in the market as a result of: greed, fear, ignorance, and hope. That is why the numerical formations and patterns recur on a constant basis." Dangerous feelings 10/03/21   Behaviour "I sat down at my fancy desk on the edge of my chair waiting for the market to open, ready to have another $50,000 day, and thinking life couldn't get any better than this. This time, I was right. It didn't." Hold my beer 09/24/21   Behaviour "giving a CEO a lot of liquidity to spend on M&A is like giving a drunk a barrel of beer. You know exactly what is going to happen, you just don't know which wall he is going to hit." Betting big and losing it all 09/19/21   Behaviour "So many of the people we celebrate today for being geniuses are the result of some combination of hard work, intelligence, luck and survivorship bias." Fake honesty 08/21/21   Behaviour "A landmark study that endorsed a simple way to curb cheating is going to be retracted nearly a decade later after a group of scientists found that it relied on faked data." Forms of wealth 08/08/21   Behaviour "Desiring money beyond what you need to be happy is just an accounting hobby." Too smart 07/19/21   Behaviour "Ninety percent of personal finance is just spend less than you make, diversify, and be patient. But if you're very intelligent that bores you to tears and feels like a waste of your potential. You want to spend your time on the 10% that's mentally stimulating." Humility 07/19/21   Behaviour "Living in reality is a key to happiness. Delay gratification, have a buffer, and invest for the future. What could be simpler?" Harder than it looks 06/20/21   Behaviour "The more we describe successful people as having guru-like powers, the more everyone else looks at them and says, 'I could never do that.' Which is unfortunate, because more people would be willing to try if they knew that those they admire are probably normal people who played the odds right." Getting the goalpost to stop moving 06/13/21   Behaviour "So having some ability to deny an extra dollar of work, or a potential opportunity, a bigger house or a nicer car, is essential if you want to use money to make a better life." Robert Cialdini interview 06/13/21   Behaviour "How rational are humans? Do we default to truth and naturally believe what people tell us? Are we natural-born skeptics or natural-born sheep?" [video] How to do long term 05/30/21   Behaviour "Long-term thinking is easier to believe in than accomplish. Most people know it's the right strategy in investing, careers, relationships - anything that compounds. But saying 'I'm in it for the long run' is a bit like standing at the base of Mt. Everest, pointing to the top, and saying, 'That's where I'm heading.' Well, that's nice. Now comes the test." Sleeping with cash 05/16/21   Behaviour "What I've found, as far as my portfolio goes, is that the necessary prerequisite for a good night's sleep is one thing above all else: an oversized cash reserve. By that, I mean a cash hoard that can handle not only the most likely contingencies, but also unexpected ones - and then some. I typically keep enough cash to finance our normal expenditures for at least six years." They get fired all the time 05/09/21   Behaviour "Pop culture lionizes the dazzling brilliance of money managers on the autism spectrum. Reality rarely measures up." Performance pay and drug use 05/09/21   Behaviour "Using US panel data on young workers, we demonstrate that those who receive performance pay are more likely to consume alcohol and illicit drugs. Recognizing that this likely reflects worker sorting, we first control for risk, ability, and personality proxies. We further mitigate sorting concerns by introducing worker fixed effects, worker-employer match fixed effects, and worker-employer-occupation match fixed effects. Finally, we present fixed effect IV estimates. All of these estimates continue to indicate a greater likelihood of substance use when a worker receives performance pay. The results support conjectures that stress and effort increase with performance pay and that alcohol and drug use is a coping mechanism for workers." Too smart for his own good 04/11/21   Behaviour "In good societies, debt levels are low. People pursue limited goals, avoid debt, and grow from retained earnings. As your great-grandparents might have said, a good life relies on deferred gratification. But such humility does not characterize the present." The truth about lying 04/03/21   Behaviour "You can't spot a liar just by looking - but psychologists are zeroing in on methods that might actually work" Just make more money 03/14/21   Behaviour "The fact is: to be more happy, just make more money." Dangerously timeful 02/20/21   Behaviour "Accidentally adhering to timeful advice is outsourcing a certain part of your life strategy to recent history. But when you outsource decisions that change your life trajectory, do you want to bet the house on the wisdom of yesteryear?" Well-being rises with income 01/24/21   Behaviour "Past research has found that experienced well-being does not increase above incomes of $75,000/y. This finding has been the focus of substantial attention from researchers and the general public, yet is based on a dataset with a measure of experienced well-being that may or may not be indicative of actual emotional experience (retrospective, dichotomous reports). Here, over one million real-time reports of experienced well-being from a large US sample show evidence that experienced well-being rises linearly with log income, with an equally steep slope above $80,000 as below it. This suggests that higher incomes may still have potential to improve people's day-to-day well-being, rather than having already reached a plateau for many people in wealthy countries." Just take the money 01/17/21   Behaviour "So, from a happiness perspective, the best thing you could do is put some base level of wealth into a diversified portfolio and have the excess be concentrated in riskier assets." You can't deplete your willpower 01/16/21   Behaviour "while the early ego-depletion concepts appear to be flawed, experts say that self-control can wax or wane for a number of predictable reasons. Understanding when and how this happens may help people avoid the kind of willpower failures that torpedo their aspirations." The reasonable optimist 12/06/20   Behaviour "The ease of underestimating how bad things can be in the short run and how good they can be in the longer run is a leading cause of bad forecasts, bad decisions, and confused people. It's common because it's easier to go all in on either optimism or pessimism - having one foot on each side feels waffling. But straddling both sides is usually the best stance." Civic honesty around the globe 12/05/20   Behaviour "Civic honesty is essential to social capital and economic development but is often in conflict with material self-interest. We examine the trade-off between honesty and self-interest using field experiments in 355 cities spanning 40 countries around the globe. In these experiments, we turned in more than 17,000 lost wallets containing varying amounts of money at public and private institutions and measured whether recipients contacted the owners to return the wallets. In virtually all countries, citizens were more likely to return wallets that contained more money. Neither nonexperts nor professional economists were able to predict this result. Additional data suggest that our main findings can be explained by a combination of altruistic concerns and an aversion to viewing oneself as a thief, both of which increase with the material benefits of dishonesty." Value 11/27/20   Behaviour "We begin our lives as growth stocks, but end our lives as value stocks." Enough 11/27/20   Behaviour "For me, enough is acknowledging the line between satisfaction and excess." Influence 11/27/20   Behaviour "We all like to think we're independent thinkers who weigh the evidence and reach our own conclusions - and yet there's ample evidence that our views are heavily influenced by those around us, whether we're choosing presidential candidates, bottled water or mayonnaise. This extends to financial matters, sometimes with grim consequences." Unfortunate social distancing 11/01/20   Behaviour "experts said it's more conversation - not less - that's needed, if the nation is to heal its blistering divide. But it has to be healthy, productive conversation. And Israel, who runs the workshops on civil discourse, said the first step must be to take it off social media and talk in person instead." Seems so easy 10/03/20   Behaviour "Figuring out what we should do with our dollars is typically straightforward: We should save regularly, diversify broadly, rebalance occasionally and so on. Instead, the tough part is getting ourselves to do what we intellectually know is right." Save like a pessimist 09/06/20   Behaviour "What Gates seems to get is that you can only be an optimist in the long run if you're pessimistic enough to survive the short run. The best way for most people to apply that is: Save like a pessimist, invest like an optimist." New marshmallow test 08/22/20   Behaviour "In a recent study, we wanted to find out how a cooperative context would affect kids. tendencies to delay gratification in a marshmallow test. Specifically, we wanted to know whether kids would be more or less likely to delay gratification when they relied on one another compared to the standard marshmallow test in which their waiting choices affect themselves alone." Rediscovered faith 08/09/20   Behaviour "For the first year of my research, I collected examples of these kinds of paradoxes - where our intuitions about what an advantage or a disadvantage are turn out to be upside down. Why are so many successful entrepreneurs dyslexic? Why did so many American presidents and British prime ministers lose a parent in childhood? Is it possible that some of the things we hold dear in education - like small classes and prestigious schools who can do as much harm as good? I read studies and talked to social scientists and buried myself in the library and thought I knew the kind of book I wanted to write. Then I met Wilma Derksen." Superforecasters 06/12/20   Behaviour "Talented amateurs who pay attention to both the science and the news seem to be better at putting accurate probabilities on key outcomes in this phase of the crisis" Old age and the decline in financial literacy 06/12/20   Behaviour "Households over age 60 own half of the discretionary investment assets in the United States and are increasingly responsible for generating income from these investments to fund retirement. Studies in cognitive aging show that older respondents experience a decline in cognitive processes closely related to financial decision making. We investigate whether knowledge of basic concepts essential to effective financial choice declines after age 60. Financial literacy scores decline by about 2% each year after age 60, and the rate of decline does not increase with advanced age. Results from regressions censored by respondent groups and financial literacy topic areas suggest that the decline is not related to cohort effects or differences in gender or educational attainment. Confidence in financial decision making abilities does not decline with age. Increasing confidence and reduced abilities can explain poor credit and investment choices by older respondents." Repetition economics 05/31/20   Behaviour "I believe repetition is the key to understanding decision making. If you include repetition into the equation, human behavior becomes rational. Biases disappear. They are not needed." Masks new social norm 05/16/20   Behaviour "The tipping point for achieving enough critical mass to initiate social change proved to be just 25 percent of participants." Acceptable flaws 05/15/20   Behaviour "Life is a little easier if you expect a certain percentage of it to go wrong no matter how hard you try." The real Lord of the Flies 05/09/20   Behaviour "It's time we told a different kind of story. The real Lord of the Flies is a tale of friendship and loyalty; one that illustrates how much stronger we are if we can lean on each other." The hardest part of buy and hold 03/27/20   Behaviour "The hardest part of a buy and hold strategy is that for it to work as expected, you have to do both the buying and the holding when markets are falling too. It's much easier to both buy and hold when markets are going up." Why generalists triumph in a specialized world 03/06/20   Behaviour "Join bestselling author David Epstein in conversation with Malcolm Gladwell for an engrossing discussion about Epstein's book, Range: Why Generalists Triumph in a Specialized World." [video] Don't lose it 02/28/20   Behaviour "if you were going to design a laboratory experiment to test investors' mettle, this past week would provide a nearly perfect template. Think about it: We have a virus without a vaccine that's spreading rapidly - but nobody knows how rapidly - which is damaging the global economy - but nobody knows how badly - at a time when many U.S. stock investors were already anxious after an extraordinarily long bull market that has pushed valuations to worrisome levels." There is always enough time to panic 02/28/20   Behaviour "Six business days ago, my estimate of future stock returns over the next ten years was 2.21%/year, the lowest I have ever seen it (and a new all-time high for the stock market). Today it is 4.40%/year. Quite a move. Also in the quite a move department is the 10-year Treasury note, whose yield went from 1.56% to 1.23%, a new all-time low." I don't know 02/21/20   Behaviour "It's easier to gain more respect for someone who speaks honestly and is humble enough to admit that they don't know the answer in the face of a tough or sometimes even simple question." The illiquidity discount 12/27/19   Behaviour "The preference for illiquid, infrequently-priced assets that don't smash you in the face with their volatility (even though it's really there) could be rational in the same sense. Perhaps a levered small cap portfolio is a rational investment for long-term investors, but there's little chance they'd stick with it full-cycle. However, they find PE easy to stick with? It's not hard for me to imagine these are both true for some (or many)." Terrible plans, wonderful businesses 10/22/19   Behaviour "Imagine you're an investor and I make you the following pitch of a business plan: We're going to open a new chain of grocery stores. The stores will sell zero branded items. No Coke. No Budweiser. No Lucky Charms. Everything will be private label. There will be no advertisements on TV or social media. Nothing in the store will ever go on sale. There will be no coupons accepted, no loyalty rewards cards and no Sunday newspaper circulars. There will be no self-checkout kiosks. The aisles in the stores will be narrow and the stores and parking lots will be relatively small. Who wants to invest in this company?" Robert Cialdini interview 10/18/19   Behaviour "Dr. Robert Cialdini has long been recognized as a leading voice in the fields of persuasion, compliance, and negotiation. Daniel Pink is the author of six provocative books - including his latest, When: The Scientific Secrets of Perfect Timing. What happens when you bring them together? Join what will surely be a lively conversation on influence, behavior, and the quirks of the human mind." [video] Risk-profile questionnaires don't work 08/31/19   Behaviour "I love the idea that risk tolerance is something that can be quantified by answering certain questions that magically reveal what your asset allocation should be. I'm opposed to using them, however, because reality indicates they don't work." Be Bach, not Darwin 06/21/19   Behaviour "A study published in the Journal of Applied Sport Psychology in 2003, which charted the life satisfaction of former Olympic athletes, found that they generally struggled with a low sense of personal control when they first stopped competing." Stay in the game 06/21/19   Behaviour "His anxiety set in, and his depression set in. At the darkest point, he almost called it. And there was nothing we could do about it. Even if we weren't 5,000 miles away there was nothing we could do about it. But, for some reason, he decided not to. Max decided to stay in the game." Becoming wise to your nudge 06/15/19   Behaviour "Two thirds of the British public (65 percent) interpreted examples of scarcity and social proof claims used by hotel booking websites as sales pressure. Half said they were likely to distrust the company as a result of seeing them (49 percent). Just one in six (16 percent) said they believed the claims." The million dollar question 05/27/19   Behaviour "Answering this question and daydreaming about that situation is a lot of fun, but there's actually something really useful buried in this question. If you give it some serious thought, it's actually an indication of what your personal plans should be, and thus what your financial plans and professional plans should be like." How fake news gets into our minds 05/20/19   Behaviour "We might like to think of our memory as an archivist that carefully preserves events, but sometimes it's more like a storyteller." Honesty instead of cheer 05/15/19   Behaviour "Practising the Greek virtues of wisdom and courage is one thing. But being cheerful the American way borders on psychosis" Financial superpowers 05/15/19   Behaviour "Having, and sticking to, a true long term perspective is the closest you can come to possessing an investing superpower." The big risk 05/15/19   Behaviour "The real risk is not that you'll see your portfolio decline, that's a promise, the real risk is that you'll seek too much comfort in your early years and leave yourself uncomfortable in your later years." The peculiar blindness of experts 05/08/19   Behaviour "The best forecasters, by contrast, view their own ideas as hypotheses in need of testing. If they make a bet and lose, they embrace the logic of a loss just as they would the reinforcement of a win. This is called, in a word, learning." Ten behavioural advantages 04/21/19   Behaviour "Amateur investors have a number of behavioural advantages" You have to live it 04/16/19   Behaviour "Another takeaway is remembering that people whose views and decisions look crazy to you may be less crazy than you think, because they're being made by people whose views on risk and reward were shaped in a different world than you've experienced." Never be happy 04/16/19   Behaviour "There is a silver lining here though. One of our defining characteristics as humans is that we're rarely, if ever, satisfied or content. Maybe it's a good thing people haven't decided to rest on their laurels just because things have gotten better over time. There's still room for improvement." We overestimate and underestimate our abilities 04/13/19   Behaviour "Do you think you are an above-average driver, as most people do? How do you compare with others as a parent? Are you better than most at dancing? Where do you rank in your capability to save humanity? Many of you will answer these questions incorrectly. For some of these skills, you will think you are better than you actually are. For others, you will think you are worse." Pure downside 03/11/19   Behaviour "A miserable event with no offset, no silver lining, is when the economy stalls and asset prices fall, and because the economy stalls you lose your job, and because you lose your job you have to sell assets at low prices, all because you didn't have enough cash." Too risky 03/04/19   Behaviour "It's a little odd to pay someone to tell you to do what you should be able to do on your own, but an adviser wouldn't even be necessary if you didn't have a portfolio that scared the bejeezus out of you once every few years. It wouldn't be necessary if you had a portfolio that you could set and forget." Where big leaps live 02/12/19   Behaviour "Few talented people get all their value from being great at one thing. Being so good at one thing that it's enough to make you extraordinary is rare. More likely are people who are pretty good at a few things and combine those things to make a big leap into something great." Time for happiness 02/05/19   Behaviour "most of us fall into a trap of spending time to get money, because we believe money will make us happier in the long run. Our thinking is backward. In fact, research consistently shows that the happiest people use their money to buy time." Morgan Housel talk 01/28/19   Behaviour "Morgan Housel's presentation on What Other Industries Teach Us About Investing" [video] Time to do something 01/16/19   Behaviour "How sensitive are your investment actions to new information?" Popularity 01/08/19   Behaviour "Popularity is a word that embraces how much anything is liked, recognized, or desired. Popularity drives demand. In this book, we apply this concept to assets and securities to explain the premiums and so-called anomalies in security markets, especially the stock market." Better habits in 2019 12/26/18   Behaviour "An atomic habit is a small habit that makes an enormous difference in your life. He talks about how the British cycling team was completely turned around by focusing on 1 percent improvements in every area. That sounds small, but it accumulates and adds up in a big way. He emphasizes thinking small with big habits. Don't promise yourself you're going to read more; instead, commit to reading one page per day. Thinking big is great, but thinking small is easier. And easier is what we're after when it comes to getting started. Because once you get started, you can build." Messy desks and benign neglect 12/17/18   Behaviour "I am trying my best to treat with equanimity the discovery of a novel ecosystem under my roof. This is because I have come to believe that many spaces work a great deal better if subjected to a sustained period of benign neglect." Rational vs reasonable 12/17/18   Behaviour "My theory is that most investment models maximize for risk-adjusted returns, but in the real world every investor wants to maximize for sleeping well at night and being proud of themselves in a complicated world." Writing 12/03/18   Behaviour "Investors do all kinds of exercises to make sense of the world - modeling scenarios in spreadsheets, conducting diligence on management, or reading pitch decks. But few exercises help clarify your thoughts better than writing." The fetishization of hustle porn 11/19/18   Behaviour "What you find is that, like fitness people who want to show and talk about their gains and what they've been working on, you'll have guys who want to show off their life hacking. You'll have people who want to talk about how they wake up early in the morning to start work, or how they stayed in the office all night working. It's almost as if they value themselves based on this performance, which makes sense, because if you think about it, in an industrial economy where people made things, they could say that they went to work and did something. Whereas in an office environment - and in a service-driven economy - that's harder to determine" The unfair advantage of discomfort 11/19/18   Behaviour "The most uncrowded path to profound wealth is often subtle improvements in an existing industry so beautifully boring as to not attract attention from those attempting to sharpen a unicorn horn instead." Investing rules of thumb don't always work 11/19/18   Behaviour "Today, we examine five such rules of thumb, and try and see whom they might work for, and who might need to tweak them." Hard words 11/12/18   Behaviour "Scientific research has shown how children learn to read and how they should be taught. But many educators don't know the science and, in some cases, actively resist it. As a result, millions of kids are being set up to fail." Robert Cialdini interview 11/05/18   Behaviour "This week, we speak with Social Psychologist Robert Cialdini, Professor Emeritus of Psychology and Marketing at Arizona State University. He is the author of the book Influence: The Psychology of Persuasion which has sold 3 million copies in 30 languages. His new book is is Pre-Suasion: A Revolutionary Way to Influence and Persuade." [audio] How Amazon loses 10/22/18   Behaviour "This, folks, this is algorithmic merchandising at its finest." Beliefs don't predict 10/15/18   Behaviour "The more we learn about how people really think, the more we must rethink economic theory." The next level of commitment 09/30/18   Behaviour "Should we tell each other how much we make?" Why facts don't change our minds 09/17/18   Behaviour "False beliefs can be useful in a social sense even if they are not useful in a factual sense. For lack of a better phrase, we might call this approach 'factually false, but socially accurate.'" Striking a chord 09/17/18   Behaviour "During the fall of 2008 - I'm referring here to both the season and the stock market - the sense of panic was palpable. I even got a call from a financial planner, whom I considered a veteran investor, wondering whether he should sell. Until that moment, I don't think I'd fully realized that knowledge is truly no match for emotion." In solitude what happiness? 08/28/18   Behaviour "Three out of four GPs say that they see between one and five lonely people a day; only 13% feel equipped to help them, even though loneliness has a detrimental effect on health equivalent to smoking 15 cigarettes a day. Only 22% of us have never felt lonely." Aliens don't get fired 08/28/18   Behaviour "Perhaps the alien's biggest superpower isn't perfect foresight, but the ability to invest in strategies that no normal investor can reasonably deploy" Bettors sniff out weak studies 08/28/18   Behaviour "Between them, they've successfully replicated just 87 out of 190 studies, for an overall rate of 46 percent." The art of self-control 08/22/18   Behaviour "So many investors try to give themselves an illusion of control in the markets by overtrading, switching strategies, following the advice of gurus, and the like. Being a control freak can work against you in something like the stock market where a lot of what happens is completely out of your control because of the inherent uncertainty." Loss aversion dies 08/07/18   Behaviour "The popular idea that avoiding losses is a bigger motivator than achieving gains is not supported by the evidence" Open offices make you less open 07/09/18   Behaviour "In the 15 days before the office redesign, participants accumulated an average of around 5.8 hours of face-to-face interaction per person per day. After the switch to the open layout, the same participants dropped to around 1.7 hours of face-to-face interaction per day." Mind the gap 2018 07/09/18   Behaviour "I'm pleased to report that the gap between official total returns and those actually experienced by investors across all mutual funds has shrunk to 26 basis points over the 10 years that ended March 31, 2018. For U.S. equity funds, the average investor (as measured by asset-weighted investor returns) gained 8.32% compared with 8.93% for the average equity fund." 12 rules for life 07/09/18   Behaviour "Crucial life lessons from the end of hockey games, Idris Elba, and some Wall Street guys with a lot of time on their hands." [audio] The myth of the Stanford Prison Study 07/02/18   Behaviour "The problem is that the study is fundamentally not credible. Severe problems with it were serious and recognized in peer-reviewed scholarship as early as 1975" Focus on risk 06/12/18   Behaviour "Experience has shown again and again that, for example, higher returns have emanated from lower-volatility stocks, and higher quality bonds have tended to outperform those of lower credit quality. In both instances, - whether risk is defined by volatility (yes, volatility can be a risk), drawdowns, or total loss, - the more conservative option has generally performed better." It can happen to anyone 06/12/18   Behaviour "History is riddled with investor after investor who couldn't quit while they were ahead and eventually ended in ruin." Lazy work 06/12/18   Behaviour "Rockefeller's job wasn't to drill wells, load trains, or move barrels. It was to make good decisions. And making decisions requires, more than anything, quiet time alone in your own head to think a problem through. Rockefeller's product - his deliverable - wasn't what he did with this hands, or even his words. It was what he figured out inside his head. So that's where he spent most of his time and energy." We are all created equal 06/12/18   Behaviour "I didn't understand him or like him. But all it took to see his humanity - to be able to treat him - was to supply that tiny bit of openness and curiosity." The psychology of money 06/04/18   Behaviour "In what other field does someone with no education, no relevant experience, no resources, and no connections vastly outperform someone with the best education, the most relevant experiences, the best resources and the best connections? There will never be a story of a Grace Groner performing heart surgery better than a Harvard-trained cardiologist. Or building a faster chip than Apple's engineers. Unthinkable. But these stories happen in investing" Scientists succumb to corruption 06/04/18   Behaviour "It starts with a dash of temptation. Stir in some rationalization and deception. The final and key ingredient is: stupid systems with perverse incentives." Revisiting the Marshmallow Test 06/04/18   Behaviour "Associations between delay time and measures of behavioral outcomes at age 15 were much smaller and rarely statistically significant." Money really isn't everything 05/28/18   Behaviour "Your mother was right: Money isn't everything. New research that examines levels of life satisfaction across more than 1,200 Canadian neighbourhoods shows that big pay cheques don't have much to say about the overall sense of happiness in a community. What matters more are factors such as affordable homes, short commuting times and - most important - a sense of community belonging. In general, rural residents are happier than their urban counterparts, despite lower incomes" Is loss aversion a myth? 05/07/18   Behaviour "The idea of loss aversion - that losses 'loom' larger than gains - is one of the most established and prominent findings in behavioural economics, and could be considered a foundation stone for the entire discipline. Recent research, however, has questioned the validity and robustness of the supporting evidence, suggesting that it is at worse a false concept and at best overstated" Lessons from John Cleese 04/30/18   Behaviour "It's absolutely no good just writing a straight script and then sticking half a dozen jokes in, because people would just remember the jokes and forget the teaching points" Be a little underemployed 04/22/18   Behaviour "Since the constraints of physically exhausting jobs are visible, we took decisive action when things weren.t working, like the Adamson Act. But the limits of mentally exhausting jobs are nuanced and less visible, so we get trapped in a spot where most of us work a schedule that doesn.t maximize our productivity, yet we do nothing about it." Things I'm pretty sure about 04/16/18   Behaviour "Some of the richest people are the worst money managers I've seen. When money loses the power of scarcity you stop caring about leaks that are meaningful when you're poorer. And when your life gets complicated you're more likely to outsource decisions to middlemen who may not have your best interest at heart. It's an overlooked irony. 'Enough money to care but not enough to not care' is the sweet spot for management." Peter Kaufman talks about thinking 04/16/18   Behaviour "I tried to learn what Munger calls, 'the big ideas' from all the different disciplines. Right up front I want to tell you my trick was, because if you try to do it the way he did it you don't have enough time in your life to do it. It's impossible. Because the fields are too big and the books are too thick." How to talk to people about money 04/02/18   Behaviour "we rarely recognize that most investment debates - debates that literally make markets - are just a reflection of people making different decisions not because they disagree with each other, but because they view investing with a different set of priorities." Why projects are late 03/19/18   Behaviour "Whether it's a giant infrastructure plan or a humble kitchen renovation, it'll inevitably take way too long and cost way too much. That's because you suffer from 'the planning fallacy.' (You also have an 'optimism bias' and a bad case of overconfidence.) But don't worry: we've got the solution." [audio] My quest for loose change 02/26/18   Behaviour "This change quest, as I've come to call it, has at times been an obsession, and at other times a hobby. But whatever you call it, it has taught me a number of lessons - about saving and spending, about patience, and even about life." Making history by doing nothing 01/15/18   Behaviour "The pull toward constant action implicitly assumes the best opportunities are constantly presenting themselves to you at every moment. It's hard to think of living in bigger bubble. Doing nothing gives you options to do something different in the future. And options can be one of the most valuable assets in world that's constantly changing and breaking down old rules." The full reset 01/01/18   Behaviour "Anything that evolves - markets, technology, careers, etc - has to be approached with the mindset that once-great ideas can expire, and when they expire you're better off walking away rather than attempting to repair them." The strong base 01/01/18   Behaviour "The greatest shortcoming of the human race is our inability to understand the exponential function." Putting your portfolio in a drawer 12/18/17   Behaviour "Long-term investors would do well to pull a page from the typical bond investor's playbook and put their entire portfolio in a drawer." We're all innocently out of touch 11/20/17   Behaviour "An American born in 1970 saw stocks rise more than eightfold in their teens and 20s. An American born in 1950 saw stocks go nowhere in their teens and 20s. In Japan, the difference between back-to-back generations was losing 100% of your money vs. making 11.5x on your money." Investors do not underperform their investments 10/30/17   Behaviour "There is no evidence that there is such a group of consistently good decision makers. As is well known, for example, institutional investors in aggregate beat the market no more frequently than individual investors in aggregate." How fiction becomes fact 10/23/17   Behaviour "For all the suspicions about social media companies' motives and ethics, it is the interaction of the technology with our common, often subconscious psychological biases that makes so many of us vulnerable to misinformation, and this has largely escaped notice." A smartphone dystopia 10/16/17   Behaviour "Google, Twitter and Facebook workers who helped make technology so addictive are disconnecting themselves from the internet." Mourning news 08/20/17   Behaviour "Because my background is in broadcasting, I've looked at the way the news shows us what the world could be like, for good and for bad, and then what that does to our brain. For instance, when you start your day with news, what does that do to you? We looked at the influence of three minutes of negative news on the brain, and what we found is if you start your day with those three minutes, it can increase your chances of having a bad day by 27%." (27% seems to be suspiciously precise.) Invert 08/16/17   Behaviour "Charlie borrowed this highly useful idea from the great 19th Century German mathematician Carl Jacobi, who created this helpful approach for improving your decision-making process. Invert, always invert" Tie me down and make me rich 07/30/17   Behaviour "Back in the 1980s, Twentieth Century Gifttrust, a fund specializing in small growth stocks with high potential returns and equally high risks, required investors to sign a legally binding contract that locked them into ownership for a minimum period - often 10 years and more. Investors loved the fund during the bull market of the 1980s and 1990s, often boasting about how satisfying it was to own a fund that would protect them from their own worst instincts to bail out every time there was a temporary downdraft in the Dow. Then came the bear market that began in 2000, in which Gifttrust generated huge losses. The same investors who had liked being bound to the fund suddenly hated it." Not as smart as you think 07/09/17   Behaviour "When it comes to learning, we are overconfident about what we know." Schmucks like us 07/09/17   Behaviour "Before you get too distracted mocking Tiger Woods and his problems, ask yourself: Would you pass the Iverson test? I don't think I would." Testing DALBAR's claims 06/11/17   Behaviour "DALBAR suggests that equity mutual fund investors have underperformed the S&P 500 by over 600 basis points annually. In contrast, Russ Kinnel, my colleague at Morningstar Research Services, has noted a more muted impact in his annual Mind the Gap report, typically in the neighborhood of 100 basis points annually." You can change 06/04/17   Behaviour "The marshmallow test became the poster child for the idea that there are specific personality traits that are stable and consistent. And this drives Walter Mischel crazy. 'That iconic story is upside-down wrong,' Mischel says. 'That your future is in a marshmallow. Because it isn't.'" Our world outsmarts us 05/07/17   Behaviour "Given the likely childhood educational advantages and familial and peer encouragement common to most Harvard medical students, house staff and faculty, their shaky performance on this test of predictive probabilities challenges traditional explanations for the dreadful mathematics and science performance endemic in the US. If those at the top of the educational heap can't do better (75 per cent fell for the so-called base rate neglect fallacy), what can be reasonably expected from the rest of us?" You need a Shultz hour 04/30/17   Behaviour "Shultz, who's now 96, told me that his hour of solitude was the only way he could find time to think about the strategic aspects of his job. Otherwise, he would be constantly pulled into moment-to-moment tactical issues, never able to focus on larger questions of the national interest. And the only way to do great work, in any field, is to find time to consider the larger questions." Online shopping suckers 04/30/17   Behaviour "Will you pay more for those shoes before 7 p.m.? Would the price tag be different if you lived in the suburbs? Standard prices and simple discounts are giving way to far more exotic strategies, designed to extract every last dollar from the consumer." Why people prefer unequal societies 04/09/17   Behaviour "There is immense concern about economic inequality, both among the scholarly community and in the general public, and many insist that equality is an important social goal. However, when people are asked about the ideal distribution of wealth in their country, they actually prefer unequal societies. We suggest that these two phenomena can be reconciled by noticing that, despite appearances to the contrary, there is no evidence that people are bothered by economic inequality itself. Rather, they are bothered by something that is often confounded with inequality: economic unfairness. Drawing upon laboratory studies, cross-cultural research, and experiments with babies and young children, we argue that humans naturally favour fair distributions, not equal ones, and that when fairness and equality clash, people prefer fair inequality over unfair equality. Both psychological research and decisions by policymakers would benefit from more clearly distinguishing inequality from unfairness." Why is my life so hard 03/19/17   Behaviour "Most of us feel we face more headwinds and obstacles than everyone else - which breeds resentment. We also undervalue the tailwinds that help us - which leaves us ungrateful and unhappy. How can we avoid this trap?" [audio] Why facts don't change our minds 02/26/17   Behaviour "Coming from a group of academics in the nineteen-seventies, the contention that people can't think straight was shocking. It isn't any longer. Thousands of subsequent experiments have confirmed (and elaborated on) this finding. As everyone who's followed the research - or even occasionally picked up a copy of Psychology Today - knows, any graduate student with a clipboard can demonstrate that reasonable-seeming people are often totally irrational." How being wrong can help 02/19/17   Behaviour "The irony is that disconfirmatory feedback is the most useful kind of feedback imaginable. If I'm making serious mistakes while cruising along in a complacent bubble of self-satisfaction, I badly need someone to explain exactly what I'm doing wrong. But what I need and what I might enjoy are, of course, quite different." Betting against correlation 02/12/17   Behaviour "These findings are a strong indication that leverage aversion is indeed an important part of the low-risk effect though by no means does it rule out other contributing explanations." Burst your filter bubble 01/29/17   Behaviour "See if you can make the best case for whatever you might find to be deplorable, or at least objectionable, in today's debate. If you're feeling really secure, show it to someone you disagree with, and ask them if they can recognize their own views in there, honestly stated." Designing better decisions 01/06/17   Behaviour "In this conversation, we explore everything from science fiction, automation, investor behavior and how Betterment tries to solve problems that goes beyond the automated asset allocation that is their bread and butter." Time management is ruining lives 12/26/16   Behaviour "You can seek to impose order on your inbox all you like - but eventually you'll need to confront the fact that the deluge of messages, and the urge you feel to get them all dealt with, aren't really about technology. They're manifestations of larger, more personal dilemmas. Which paths will you pursue, and which will you abandon? Which relationships will you prioritise, during your shockingly limited lifespan, and who will you resign yourself to disappointing? What matters?" Does decision-making matter? 11/27/16   Behaviour "We don't decide about life; we're captured by life. In the major spheres, decision-making, when it happens at all, is downstream from curiosity and engagement. If we really want to understand and shape behavior, maybe we should look less at decision-making and more at curiosity. Why are you interested in the things you are interested in? Why are some people zealously seized, manically attentive and compulsively engaged?" Hindsight bias 11/13/16   Behaviour "The issue of hindsight bias and fooling ourselves about what we think knew a priori haunts investors constantly. We are reminded of this by those who claim they saw the financial meltdown coming. Despite the lack of proof, they remain convinced they knew what was about to happen all along." The art of doing nothing 11/13/16   Behaviour "The thing that makes investing so difficult is that it's analogous to ordering a chicken sandwich in a restaurant while hundreds of sales people are coming up to you explaining why their sandwich is going to protect you against inflation, market crashes, etc. Meanwhile, TVs are blaring in the background explaining how sandwiches are on the verge of imminent disaster... We are constantly barraged with news and events that trigger that urge to act. And 99% of the time you should say no to these sales people and just order your plain old chicken sandwich." Robert J. Shiller on behavioral economics 11/06/16   Behaviour "it doesn't help to have a theory based on wrong assumptions" Watching the flows 10/29/16   Behaviour "As the available research shows (and anyone with experience in the business knows), flows follow performance. To varying degrees, it is true in every part of the investment world. Individuals and institutional investors alike chase performance. Avoiding that tendency is behaviorally difficult but essential for long-term success" Give up the news for a week 10/29/16   Behaviour "No matter what your reasons for being a news junkie, researchers are finding that consuming news on an hourly or even daily basis is bad for your brain. Studies have shown that an overabundance of news can make you depressed, anxious, and, for the most part, doesn't usually provide you with the ability to actually change or influence anything being reported." Choose time over money 10/29/16   Behaviour "Although the majority of people chose more money, choosing more time was associated with greater happiness - even controlling for existing levels of available time and money." ILTB: Morgan Housel 10/09/16   Behaviour "Morgan Housel and I explore the differences between private and public market investing, how to foster innovation and creativity, how businesses are structured and organized, and how Morgan finds interesting books and topics to write about." Time or Money 09/17/16   Behaviour "We found that the people who chose time were on average statistically happier and more satisfied with life than the people who chose money." Nudges take a battering 09/11/16   Behaviour "In yet another setback for the field, researchers have failed to replicate two studies showing that basic techniques can reduce racial achievement gaps and improve voter turnout." Danny Kahneman interview 08/07/16   Behaviour "In a wide-ranging discussion, Kahneman discusses how he met Amos Tversky, who became his his long time research partner. He describes how 'we' won the Nobel Prize, referring to his sharing of the prize with Tversky, who died prior to the Nobel Prize win." 10 attributes of great investors 08/06/16   Behaviour "As a strategist and a student of investing, I have had the opportunity to meet or study many great investors. I will now share the attributes that I believe distinguish them from the rest. The reason for the background is to reveal my bias. I believe in economic value, the importance of constant learning and teaching, and that diverse input combined with rigor can lead to insight." Who bought U.S. stocks after 2008? 07/31/16   Behaviour "When mutual fund shareholders redeem their investments, thereby causing the funds that they previously owned to sell securities, the buyers of those securities could be pension funds. But they also could be other entities: individual investors, hedge funds, sovereign wealth funds. They might even be corporations, conducting stock-buying programs." Cultural evolution 07/10/16   Behaviour "Two brains are better than one; in fact, group thinking could be the very reason the human species survived. According to author Joseph Henrich, it's a wonder that humans made it this far considering we are a comparatively weak and dimwitted mammal." Economist at the self-checkout 06/19/16   Behaviour "This insight into what drives decision-making has great practical implications when we wish to change behaviour - a small change in the environment in which agents operate is probably all we need." The curse of culture 06/04/16   Behaviour "culture is not something that begets success, rather, it is a product of it." Two-star managers 06/04/16   Behaviour "When I said I would love an interview series with 2-star fund managers, the most common response was 'just go watch the 5-star interviews from a few years ago.'" Why humans run the world 05/29/16   Behaviour "We often look for the difference between us and other animals on the individual level. We want to believe that there is something special about the human body or human brain that makes each individual human vastly superior to a dog, or a pig, or a chimpanzee. But the fact is that one-on-one, humans are embarrassingly similar to chimpanzees. If you place me and a chimpanzee together on a lone island, to see who survives better, I would definitely place my bets on the chimp." Cleaning up La Paz 05/29/16   Behaviour "Perhaps the most important lesson of the La Paz experience is its emphasis on the promotion of integrity. The city's experience suggests that interventions based on such an approach are likely to prove more successful than more conventional anti-corruption campaigns. Or, to put it differently: cultivating positive values that stand in opposition to graft appears to be more effective than simply instilling a fear of retribution." The danger of being risk-averse 05/22/16   Behaviour "In other words, prevention-focused people generally prefer the conservative option when everything is going according to plan, but they will embrace risk when it's their only shot at returning to status quo." Go 100% equities 05/22/16   Behaviour "What Preet Banerjee would tell his younger self about investing: Go 100% equities" [video] When to quit 05/14/16   Behaviour "Do we tend to quit too soon or quit too late? Are we too stubborn or not determined enough?" Too much feedback 04/30/16   Behaviour "Checking your portfolio or the market on a daily basis is like getting on the scale every 20 minutes and expecting progress. Even in quarterly and annual returns there is going to be a lot of noise" Cumulative advantage 04/10/16   Behaviour "But just because we now know that something happened doesn.t imply that we could have known it was going to happen at the time, even in principle, because at the time, it wasn.t necessarily going to happen at all." Don't give stocks 100% of yourself 02/21/16   Behaviour "Go ahead, invest 100 percent of everything you have in stocks. Or, even better, please don't." Why does pessimism sound smart? 01/24/16   Behaviour "I have observed that not the man who hopes when others despair, but the man who despairs when others hope, is admired by a large class of persons as a sage." Why is there an investor return gap? 11/28/15   Behaviour "The investor return gap persists, despite strong evidence that factor performance is mean reverting, because investors use the manager selection process for alpha timing." Dan Ariely on relationships 11/21/15   Behaviour "Googler Logan Ury talks to behavioral economist and 'Predictably Irrational' author Dan Ariely in the second of our Modern Romance talks. They discuss the paradox of choice in the 'Age of Tinder,' why a canoe is the best place to test your long-term compatibility, and other research-based insights and advice for modern dating and relationships." [video] The amateur investing advantage 11/08/15   Behaviour "People who are not professional investors - those Mom and Pop investors I refer to all the time - have enormous advantages of their own." How patient an investor are you? 11/07/15   Behaviour "For investors, your lack of patience, both at an individual and institutional level, is forcing investment managers to take steps to control their own business risk and become sensitive to benchmark tracking error. If you want to know who to blame for closet indexing, look in the mirror." The power of nudges 11/01/15   Behaviour "In the meantime, that deal qualifies as a nudge that violates all three of my guiding principles: The offer was misleading, not transparent; opting out was cumbersome; and the entire package did not seem to be in the best interest of a potential subscriber, as opposed to the publisher." In praise of the dead 10/10/15   Behaviour "The dead have their drawbacks. They make for dull company, and when the dishes need washing, they are never around. As investment mentors, however, they have their merits." Relationships and credit scores 10/04/15   Behaviour "One new place where credit scores could prove useful is analyzing a prospective spouse." Mind the gap 2015 08/16/15   Behaviour "Overall, the average investor return across all funds was 5.61% for the cheapest quintile and 3.28% for the priciest. The gap was 80 basis points for the cheapest quintile and 179 basis points for the priciest." Timing poorly 06/06/15   Behaviour "Value investing is viewed as a historically successful investment strategy. The literature generally agrees on the robustness of the strategy but disagrees on the explanations for the success. While the empirical research focuses exclusively on the time-series returns - or the buy-and-hold return - of a value portfolio, the investor experience is, of course, driven by the internal rate of return (IRR) - or the dollar-weighted average return. Although the buy-and-hold average portfolio return may be the proper way to document the anomaly, the dollar-weighted average return can shed light on some interesting questions which cannot be addressed by analyzing the buy-and-hold returns. In particular, examining the dollar-weighted returns allows us to ask whether investors have actually generated superior IRR consistent with the reported buy-and-hold outperformance of value strategies." A kinder philosophy of success 05/09/15   Behaviour "Alain de Botton examines our ideas of success and failure -- and questions the assumptions underlying these two judgments. Is success always earned? Is failure? He makes an eloquent, witty case to move beyond snobbery to find true pleasure in our work." Another Gladwell mindworm dies 05/03/15   Behaviour "Wouldn't it be cool if there was a simple trick to score better on college entrance exams like the SAT and other tests? There is a reputable claim that such a trick exists. Unfortunately, the trick does not appear to be real." The money taboo 04/20/15   Behaviour "Knowledge was power, and knowing how much things cost would lead to movement among the social classes" Why are you working? 04/11/15   Behaviour "If you are like us, you often find yourself working on weekends and are criticized by somebody (your spouse, a friend, a colleague) who thinks there is something inherently wrong in spending some time over the weekend on work-related activities. Do they have a point?" Eating better 03/20/15   Behaviour "There are all sorts of ways that companies can help people eat better and make more money" Why Are Resolutions So Hard To Follow? 01/01/15   Behaviour "While setting New Year's resolutions is routine for many of us, research from the University of Scranton shows while 45% of Americans usually make New Year's resolutions, only 8% actually stick to them. So, why are resolutions so quickly discarded? The easy answer is because most resolutions require a change in habit." Behavioral portfolio management 12/20/14   Behaviour "Do you know the names of the stocks you own? That may seem like a funny question, but simply knowing the names of your holdings puts you at risk of making behaviorally driven decisions, such as acting on emotionally fueled news stories, according to C. Thomas Howard" In praise of small miracles 12/12/14   Behaviour "Most of us don't save enough. When governments try to encourage saving, they usually enact big policies to increase the incentives. But, in Kenya, people were given a lockable metal box - a simple place to put their money. After one year, the people with metal boxes increased savings by so much that they had 66 percent more money available to pay for health emergencies. It would have taken a giant tax reform to produce a shift in behavior that large." Pets allowed 10/26/14   Behaviour "What a wonderful time it is for the scammer, the conniver, and the cheat: the underage drinkers who flash fake I.D.s, the able-bodied adults who drive cars with handicapped license plates, the parents who use a phony address so that their child can attend a more desirable public school, the customers with eleven items who stand in the express lane. The latest group to bend the law is pet owners." Incentives matter 10/11/14   Behaviour "Did you know police can just take your stuff if they suspect it's involved in a crime? They can! It's a shady process called 'civil asset forfeiture,' and it would make for a weird episode of Law and Order." [video] A good case of amnesia 09/13/14   Behaviour "I am fascinated by an anecdote related recently by James O'Shaughnessy of O'Shaughnessy Asset Management. An employee who recently joined his firm told him that Fidelity had studied which customer investing accounts performed the best: They were the ones held by people who had forgotten they even had Fidelity accounts, and so did no buying or selling from them." Hard money is not a mistake 09/06/14   Behaviour "Aggregate wealth is held by risk averse individuals who don't individually experience aggregate outcomes. Prospective outcomes have to be extremely good and nearly certain to offset the insecurity soft money policy induces among individuals at the top of the distribution, people who have much more to lose than they are likely to gain. It's not because they're bad people. Diminishing marginal utility, habit formation and reference group comparison, the zero-sum quality of insurance against systematic risk, and the tendency of regression towards the mean, all make soft money a bad bet for the wealthy even when it is a good bet for the broader public and the macroeconomy." Why the M-B test is meaningless 07/19/14   Behaviour "This isn't a test designed to accurately categorize people, but a test designed to make them feel happy after taking it. This is one of the reasons why it's persisted for so many years in the corporate world, despite being disregarded by psychologists." Moral behavior in animals 06/14/14   Behaviour "Empathy, cooperation, fairness and reciprocity - caring about the well-being of others seems like a very human trait. But Frans de Waal shares some surprising videos of behavioral tests, on primates and other mammals, that show how many of these moral traits all of us share." Portfolio tracking is for losers 06/07/14   Behaviour "If we can't stop ourselves being biased by market information then we have the alternative of avoiding it. The idea that we should cut ourselves off from our portfolios and limit our exposure to market news is anathema to the majority of us, but we'd probably end up wealthier as a result." 10 lessons from a Navy SEAL 05/30/14   Behaviour "U.S. Navy admiral and University of Texas, Austin, alumnus William H. McRaven returned to his alma mater last week to give seniors 10 lessons from basic SEAL training when he spoke at the school's commencement." Standing out from the crowd 02/08/14   Behaviour "Two approaches can be used to assess and monitor the level of 'crowding' in different quantitative strategies. The authors introduce these measures and present anecdotal evidence suggesting that many quantitative strategies were crowded in the period leading up to the global financial crisis." TED talks are lying to you 01/26/14   Behaviour "This was not science, despite the technological gloss applied by writers like Jonah Lehrer. It was a literature of superstition, in which everything always worked out and the good guys always triumphed and the right inventions always came along in the nick of time." [Warning: The grumpiness is strong with this one] Survivorship bias 11/24/13   Behaviour "The military looked at the bombers that had returned from enemy territory. They recorded where those planes had taken the most damage. Over and over again, they saw the bullet holes tended to accumulate along the wings, around the tail gunner, and down the center of the body. Wings. Body. Tail gunner. Considering this information, where would you put the extra armor? Naturally, the commanders wanted to put the thicker protection where they could clearly see the most damage, where the holes clustered. But Wald said no, that would be precisely the wrong decision. Putting the armor there wouldn't improve their chances at all." Graham & Doddsville: Fall 2013 10/13/13   Behaviour Be sure to read the Guy Spier interview: Build Your Life in a Way That Suits You The tragedy of the commons 09/08/13   Behaviour "The problem with Hardin's logic was the very first step: the assumption that communally owned land was a free-for-all. It wasn't. The commons were owned by a community. They were managed by a community. These people were neighbours. They lived next door to each other. In many cases, they set their own rules and policed those rules." Hard-wired for giving 09/05/13   Behaviour "The Darwinian principle of "survival of the fittest" echoes what many people believe about life: To get ahead, you need to look out for No. 1. A cursory read of evolutionary doctrine suggests that the selfish individuals able to outcompete others for the best mates and the most resources are most likely to pass their genes on to the next generation. Then there is classical economic theory, which holds that given the choice, we will often opt for a personal benefit over a personal loss, even if that loss involves a benefit to someone else. The philosopher and economist John Stuart Mill championed the self-centered theory in the mid-1800s, describing man as a creature that "does that by which he may obtain the greatest amount of necessaries, conveniences and luxuries, with the smallest quantity of labor and physical self-denial." But the latest science shows that, in fact, we are also hard-wired to be generous." Why the paradox of choice might be a myth 08/25/13   Behaviour "It could be one of the most memorable economic studies of the last half century. Researchers presented an array of tasty jams and enticed shoppers to buy a jar. In one version, there were six varieties shown to shoppers. In another, there were 24 jams. The second, larger array attracted more traffic. But the smaller array led to ten times more purchases. Sometimes, they concluded, too many options repel us. The researchers called it "the paradox of choice." You might call it "feeling overwhelmed by options." But some economists are calling it something else: "complete hogwash."" Pathological Altruism 06/16/13   Behaviour "Oakley defines pathological altruism as "altruism in which attempts to promote the welfare of others instead result in unanticipated harm." A crucial qualification is that while the altruistic actor fails to anticipate the harm" News is bad for you 04/14/13   Behaviour "News is bad for your health. It leads to fear and aggression, and hinders your creativity and ability to think deeply. The solution? Stop consuming it altogether" Would the real Peter and Paul please stand up? 03/17/13   Behaviour "But we must also understand that exchange is only possible to the extent that people trust each other: when eating in a restaurant we trust the chef not to put things in our food; when hiring a builder we trust him to build a wall which won.t fall down; when we book a fl ight we entrust our lives and the lives of our families to complete strangers. Trust is social bonding and societies without it are stalked by social unrest, upheaval or even war. Distrust is a brake on prosperity, because distrust is a brake on exchange." Trust & growth 03/17/13   Behaviour "Trust is core to all economic activity. You only want to act if you think you will not be cheated. Poor societies are often characterized by a lack of trust, which hampers exchange, and hampers credit as well. To the degree that you doubt that you will be rewarded for the fruits of your labor, you will face frictional costs in doing business, and you might reduce your business in areas that don.t seem to be worth the risk." We aren't the world 03/03/13   Behaviour "It is not just our Western habits and cultural preferences that are different from the rest of the world, it appears. The very way we think about ourselves and others - and even the way we perceive reality - makes us distinct from other humans on the planet, not to mention from the vast majority of our ancestors. Among Westerners, the data showed that Americans were often the most unusual, leading the researchers to conclude that 'American participants are exceptional even within the unusual population of Westerners - outliers among outliers.' Given the data, they concluded that social scientists could not possibly have picked a worse population from which to draw broad generalizations. Researchers had been doing the equivalent of studying penguins while believing that they were learning insights applicable to all birds." David Brooks on The Social Animal 02/16/13   Behaviour "In a lecture entitled How Success Happens, New York Times columnist and author, David Brooks, draws from the research in his latest book The Social Animal" The bad luck of winning 12/08/12   Behaviour "From one point of view - the point of view of lottery officials - you couldn't ask for more ideal winners than the Hills. Mark works for a meatpacking plant. Cindy is a clerical worker who was laid off in June 2010. When they were introduced to the news media on Friday, their adopted daughter in tow, they talked about how the money might allow them to adopt another child. They said they were going to help various relatives pay for college. They insisted that the money wouldn't change them. The only extravagance they mentioned was a red Camaro that Mark wanted. They made winning the lottery seem downright heartwarming. But it's not. On the contrary, lotteries may well be the single most insidious way that state governments raise money." In praise of copycats 08/11/12   Behaviour "The conventional wisdom today is that copying is bad for creativity. If we allow people to copy new inventions, the thinking goes, no one will create them in the first place. Copycats do none of the work of developing new ideas but capture much of the benefit. That is the reason behind patents and copyrights: Copying destroys the incentive to innovate. Except when it doesn't. There are many creative industries, like finance, that lack protection against copying (or did for a long time). A closer look at these fields shows that plenty of innovation takes place even when others are free to copy." After this, therefore because of this 08/01/12   Behaviour "Correlation isn't causation. It's a hint or a possibility, but no sure thing. This entire process is so difficult because we have so much trouble isolating causation. It's easy to see that bad traffic can cause one's commute to be longer than normal, but ascertaining causation where there are huge numbers of variables can be astonishingly difficult. Finding a causal chain in the hard sciences can be made easier by creating experiments that limit the variables or even eliminate all other possible variables. That's simply not possible in the markets." Why we're driven to trade 07/22/12   Behaviour "Most of the folks who say buy and hold is dead don't talk much about their long-term returns. Instead, they stress how they have done recently, a tactic that for many potential clients has the same irresistible appeal as the last couple of pulls on a slot machine." Failure and rescue 06/09/12   Behaviour "But there continue to be huge differences between hospitals in the outcomes of their care. Some places still have far higher death rates than others. And an interesting line of research has opened up asking why. Researchers at the University of Michigan discovered the answer recently, and it has a twist I didn't expect. I thought that the best places simply did a better job at controlling and minimizing risks - that they did a better job of preventing things from going wrong. But, to my surprise, they didn't. Their complication rates after surgery were almost the same as others. Instead, what they proved to be really great at was rescuing people when they had a complication, preventing failures from becoming a catastrophe." Doctored papers 04/20/12   Behaviour "Dr. Fang became curious how far the rot extended. To find out, he teamed up with a fellow editor at the journal, Dr. Arturo Casadevall of the Albert Einstein College of Medicine in New York. And before long they reached a troubling conclusion: not only that retractions were rising at an alarming rate, but that retractions were just a manifestation of a much more profound problem - "a symptom of a dysfunctional scientific climate," as Dr. Fang put it. Dr. Casadevall, now editor in chief of the journal mBio, said he feared that science had turned into a winner-take-all game with perverse incentives that lead scientists to cut corners and, in some cases, commit acts of misconduct." Behavioral Biases of Mutual Fund Investors 03/07/12   Behaviour "We examine the effect of behavioral biases on the mutual fund choices of a large sample of U.S. discount brokerage investors using new measures of attention to news, tax awareness, and fund-level familiarity bias, in addition to behavioral and demographic characteristics of earlier studies. Behaviorally-biased investors typically make poor decisions about fund style and expenses, trading frequency, and timing, resulting in poor performance. Furthermore, trend-chasing appears related to behavioral biases, rather than to rationally inferring managerial skill from past performance. Factor analysis suggests that biased investors often conform to stereotypes that can be characterized as "gambler", "smart", "overconfident", "narrow-framer", and "mature"." The rise of the new groupthink 01/14/12   Behaviour "Our companies, our schools and our culture are in thrall to an idea I call the New Groupthink, which holds that creativity and achievement come from an oddly gregarious place. Most of us now work in teams, in offices without walls, for managers who prize people skills above all. Lone geniuses are out. Collaboration is in. But there's a problem with this view. Research strongly suggests that people are more creative when they enjoy privacy and freedom from interruption. And the most spectacularly creative people in many fields are often introverted" When reinforcement fails 12/29/11   Behaviour "In many situations, such reinforcement learning is an essential strategy, allowing people to optimize behavior to fit a constantly changing situation. However, the Israeli scientists discovered that it was a terrible approach in basketball, as learning and performance are "anticorrelated." In other words, players who have just made a three-point shot are much more likely to take another one, but much less likely to make it" Stories make me nervous 12/22/11   Behaviour "I was told to come here and tell you all stories, but what I'd like to do is instead tell you why I'm suspicious of stories, why stories make me nervous. In fact, the more inspired a story makes me feel, very often the more nervous I get. So the best stories are often the trickiest ones." Bill Miller had a great run. But did his investors? 12/07/11   Behaviour "The fund made 16.44% a year in gains and reinvested dividends during that period, but the average investor made only 11.34%. Miller's average investor actually underperformed the S&P (which returned 11.51% annually during his streak), even though his fund way outperformed the index. ... Interestingly, the presumably non-starstruck investors in Vanguard's plain-vanilla S&P 500 index fund (VFINX), which I also asked Morningstar to analyze, fell into the same trap. During Miller's 15-year hot streak, the index fund returned 11.41% -- but its average investor made only 7.96%." I was wrong, and so are you 11/14/11   Behaviour "The new results invalidated our original result: under the right circumstances, conservatives and libertarians were as likely as anyone on the left to give wrong answers to economic questions. The proper inference from our work is not that one group is more enlightened, or less. It's that "myside bias" - the tendency to judge a statement according to how conveniently it fits with one's settled position - is pervasive among all of America's political groups. The bias is seen in the data, and in my actions." How a Financial Pro Lost His House 11/12/11   Behaviour "Everywhere I looked, people were being rewarded for buying as much house as they could possibly afford, and then some. There was this excitement in the air, almost like static. I started to think that if I didn't buy a house right then, I would never be able to afford one. At moments during our house hunt, I felt in my gut that something wasn't right. We'd go to open houses for $400,000 homes and see lines of couples in their late 20s - younger than we were - waiting to get inside. I kept wondering where all the money was coming from. How did all these people make so much? But prices just kept rising, and when people kept buying, that made it seem safer. I knew from my work as a financial adviser that following the crowd could be costly. But like everyone else, I felt safer in a crowd." Bias, blindness and how we think 11/01/11   Behaviour "In the market, of course, belief in one's superiority has significant consequences. Leaders of large businesses sometimes make huge bets in expensive mergers and acquisitions, acting on the mistaken belief that they can manage the assets of another company better than its current owners do. The stock market commonly responds by downgrading the value of the acquiring firm, because experience has shown that such efforts fail more often than they succeed." The science of irrationality 10/19/11   Behaviour "Here's a simple arithmetic question: 'A bat and ball cost $1.10. The bat costs $1 more than the ball. How much does the ball cost?' The vast majority of people respond quickly and confidently, insisting the ball costs 10 cents. This answer is both incredibly obvious and utterly wrong. (The correct answer is five cents for the ball and $1.05 for the bat.) What's most impressive is that education doesn't really help more than 50% of students at Harvard, Princeton and the Massachusetts Institute of Technology routinely give the incorrect answer." Why envy dominates greed 10/03/11   Behaviour "Economists agree that no reasonable risk metric predicts returns within or between any asset class, but always suggest that just implies risk, like fine wine, is very subtle. This is because we know there is a risk premium, because given our conception of utility (increasing at a decreasing rate), there must be a risk premium. Like telling the Journal of Marxist Studies that 'class' is not the best lens to view behavior, telling economists that self interest is primarily envy, not consumption, is simply too dismissive of the foundations they find so compelling to their calling all that human capital is tied to mastery of work that may not work, but at least currently there's hope that another tweak might turn these highly rigorous models into seminal, important work." Risk management and sounding crazy 09/02/11   Behaviour "All this leads me to wondering about Warren Buffett - the greatest fund manager of them all. He is an unusual individual with strange personal predilections. But he sounds so rational. And he is amazingly self-controlled. Indeed his ability to sit on billions of dollars excess cash for years and years at a time waiting for the time to pounce is legendary and extraordinarily hard to duplicate. Buffett says that temperament is more important than brains in investing and I think this is what he means. But it is often Buffett against the world. Buffett is thought of as a has-been by many people. It doesn't matter whether he was avoiding tech stocks in 1998, 1999 and 2000. It does not matter whether he was buying Bank of America now. He is - of course - just mad. The madness is an important part of how Buffett made all that money. But the self control is - I think - more important." The halo effect 09/01/11   Behaviour "As management professor Phil Rosenzweig points out in his book 'The Halo Effect,' a soaring stock price can lead investors to regard the company's managers as focused, disciplined and passionate - while, in the negative halo of a falling stock price, the same executives will now seem stubborn, unimaginative and resistant to change. Investors think, at either time, that they are evaluating the stock and the managers independently, but one opinion inevitably colors the other, often leading investors to be too bullish on the upside and too bearish on the downside. The managers haven't changed our perceptions of them have." Everyone else is biased 07/11/11   Behaviour "Yet he forgets the most profound behavioral bias in this literature that is delightfully recursive: We think we are better than average at not being biased in thinking that we're better than average." A culture of trust 07/02/11   Behaviour "Trust, or the lack of it, certainly matters when it comes to commerce. Knack and Keefer, for instance, showed that for a 10% rise in "trust", as they define it, a country showed a near 1% increase in annual per capital growth, and that civic co-operation was also positively correlated with economic growth. There are multiple possible reasons for this, but if trust is generally reciprocated then the need for all sorts of costly protection mechanisms to defend against being cheated - everything from contracts to security guards and from burglar alarms to prenups - go away. When Buchan and colleagues looked at this issue they also found that the degree of trust people exhibited between each other increased with the amount of personal communication between them, no matter how irrelevant. What it seems is that simply getting to know someone is sufficient to promote trust and, with it, reciprocity: we find it harder to cheat people we have a personal relationship with." Reason as a weapon 06/15/11   Behaviour "For centuries thinkers have assumed that the uniquely human capacity for reasoning has existed to let people reach beyond mere perception and reflex in the search for truth. Rationality allowed a solitary thinker to blaze a path to philosophical, moral and scientific enlightenment. Now some researchers are suggesting that reason evolved for a completely different purpose: to win arguments." How David beats Goliath 05/31/11   Behaviour "Why, then, did weak teams play in a way that made it easy for good teams to do the very things that made them so good?" Lessons for the irrational investor 05/28/11   Behaviour "In recent years interest in behavioral finance has steadily grown: It's equally valuable to retirees deciding whether to stick with their dividends or risk their savings in the currency markets, to a fund manager putting a good spin on a bad year, and to a brokerage redesigning its retirement accounts. And recently, of course, the stock market has given behavioral economists all the more to think about, as Main Street and Wall Street investors have pushed stock prices up and down in reaction to crises in Japan and the Middle East." On being wrong 04/23/11   Behaviour "Most of us will do anything to avoid being wrong. But what if we're wrong about that? 'Wrongologist' Kathryn Schulz makes a compelling case for not just admitting but embracing our fallibility." Does DALBAR really calculate investor returns? 04/18/11   Behaviour "To give credit where it's due, DALBAR deserves kudos for having begun its annual QAIB studies as far back as the mid-1980s. But for nearly a decade, I have suspected that DALBAR's methodology was flawed. I contacted DALBAR recently in an effort to confirm my understanding of the finer points of their calculations. Their lack of response left me with my original interpretation of DALBAR's 2001 QAIB report, the only full version I've reviewed. And it reveals what may be a questionable methodology. I suspect that DALBAR calculates what it calls investor returns by applying dollar-weighted fund redemption rates to benchmark returns - rather than applying a DWRR calculation directly to the funds. And if they're doing that, they're not calculating investor returns." Measurements that mislead 04/02/11   Behaviour "Mr. Sackett had assumed that these separate measurements would generate similar rankings. Those cashiers who were fastest in the short test should also be the fastest over the long term. But instead he found a surprisingly weak correlation between the rankings, leading him to distinguish between two types of personal assessment. One measures 'maximum performance': People who know they're being tested are highly motivated and focused, just like those cashiers scanning a few items while being timed. The other type measures 'typical performance' - measured over long periods of time, as when Mr. Sackett recorded the speed of cashiers who didn't know they were being watched. In this sort of test, character traits that have nothing to do with maximum performance begin to influence the outcome." How Carrots Became the New Junk Food 03/23/11   Behaviour "The company has been around for nearly a century now, but it boomed in the 1990s, with a breakthrough product. A local grower named Mike Yurosek had become frustrated with all the waste in the carrot business. Supermarkets expected carrots to be a particular size, shape, and color. Anything else had to be sold for juice or processing or animal feed, or just thrown away. Yurosek wondered what would happen if he peeled the skin off the gnarly carrots, cut them into pieces, and sold them in bags. He made up a few test batches to show his buyers. One batch, cut into 1-inch bites and peeled round, he called 'bunny balls.' Another batch, peeled and cut 2 inches long, looked like little baby carrots. Bunny balls never made it. But baby carrots were a hit. They transformed the whole industry. Soon, the big growers in Bakersfield were planting fields with baby carrots in mind, sowing three times more seeds per acre, so the carrots, packed densely together, would grow long and skinny, for the maximum number of 2-inch cuts. Yields and profits climbed. The really big deal, the thing nobody expected, was that baby carrots seemed to make Americans eat more carrots. In the decade after they were introduced, carrot consumption in the United States doubled." The Crowded Restaurant Conundrum 03/17/11   Behaviour "These restaurants have perfected the art of creating Veblen goods - items where demand increases as the price goes up. In this rarefied world, high prices are a feature, not a bug they're status symbols that alert others to the fact that the patrons can pay $26 for something as basic as a spinach salad. They also serve to keep out the riff-raff." How Great Entrepreneurs Think 02/09/11   Behaviour "Sarasvathy likes to compare expert entrepreneurs to Iron Chefs: at their best when presented with an assortment of motley ingredients and challenged to whip up whatever dish expediency and imagination suggest. Corporate leaders, by contrast, decide they are going to make Swedish meatballs. They then proceed to shop, measure, mix, and cook Swedish meatballs in the most efficient, cost-effective manner possible. That is not to say entrepreneurs don't have goals, only that those goals are broad and - like luggage - may shift during flight. Rather than meticulously segment customers according to potential return, they itch to get to market as quickly and cheaply as possible, a principle Sarasvathy calls affordable loss. Repeatedly, the entrepreneurs in her study expressed impatience with anything that smacked of extensive planning, particularly traditional market research." People play events into biases 02/09/11   Behaviour "I'm a big believer in Jonathan Haidt's characterization of our brains as articulate confabulators, primarily engaged in rationalizing our prejudices. I have rarely witnessed someone change their mind on something important to them based on any one fact sure, disinterested people do, but not anyone who's invested several years on a subject. Last week's John Tierney's NYT article on academics highlights they are just as biased as the uneducated, even though they consider them paragons of rational, unbiased thought" Blaming the Rat 01/17/11   Behaviour "Here's the problem in a nutshell: our mix of jobs has changed profoundly while our approach to incentives has not. As a consequence, we have employees who have lost motivation and faulty incentive programs that have introduced a raft of unintended consequences." The power of vulnerability 12/26/10   Behaviour "Brene Brown studies human connection -- our ability to empathize, belong, love. In a poignant, funny talk at TEDxHouston, she shares a deep insight from her research, one that sent her on a personal quest to know herself as well as to understand humanity" Bank Leverage Limits 12/22/10   Behaviour "Crises are often compared to drinking binges, where excessive exuberance is followed by hangovers. Following that analogy, if you try to say, 'we don't want people drinking to excess, so we will stop everyone at 6 drinks', well then, they will switch from beer to wine, whiskey, or grain alcohol. But the drinking problem is potentially soluble because you can measure alcohol, and say allow people one 12 ounce beer, one 5 ounce glass of wine, etc. Basically, the key unit is 'ethanol, which has measurable properties. In contrast, we don't know what 'risk' is. Beta? Volatility? Skew? Get back to me on that. You can't regulate what you can't define." The 10 Mistakes Investors Most Commonly Make 12/12/10   Behaviour "In an interview with DailyFinance, Statman, a professor of finance at Santa Clara University in California, shared his top 10 errors that trip up average investors" A Bully Finds a Pulpit on the Web 11/28/10   Behaviour "Which means the owner of ... might be more than just a combustible bully with a mean streak and a potty mouth. He might also be a pioneer of a new brand of anti-salesmanship - utterly noxious retail - that is facilitated by the quirks and shortcomings of Internet commerce and that tramples long-cherished traditions of customer service, like deference and charm." Programming our lives away 11/27/10   Behaviour "Increasingly, algorithms are used to determine whether we can get access to credit, insurance and government services. They are posing a challenge to human decision-making in the arts. They are being used by prospective employers to decide if we should be hired. They can determine whether your online business will succeed or fail, and they have revolutionized the world of high finance." Volatility mesures behavioural risk 10/18/10   Behaviour "I was wrong to dismiss standard deviation as a risk measure for all of those years. It's not a measure of investment risk but a measure of behavioural risk. Still, standard deviation measures a type of risk that has potentially damaging consequences." Later 10/04/10   Behaviour "A few years ago, Dan Ariely, a psychologist at M.I.T., did a fascinating experiment examining one of the most basic external tools for dealing with procrastination: deadlines. Students in a class were assigned three papers for the semester, and they were given a choice: they could set separate deadlines for when they had to hand in each of the papers or they could hand them all in together at the end of the semester. There was no benefit to handing the papers in early, since they were all going to be graded at semester's end, and there was a potential cost to setting the deadlines, since if you missed a deadline your grade would be docked. So the rational thing to do was to hand in all the papers at the end of the semester that way you'd be free to write the papers sooner but not at risk of a penalty if you didn't get around to it. Yet most of the students chose to set separate deadlines for each paper, precisely because they knew that they were otherwise unlikely to get around to working on the papers early, which meant they ran the risk of not finishing all three by the end of the semester. This is the essence of the extended will: instead of trusting themselves, the students relied on an outside tool to make themselves do what they actually wanted to do." The 10 Biggest Gold Myths 10/03/10   Behaviour "Gold has been the investment phenomenon of the past decade. It hit a new high of 1,278 an ounce this week. In the past 10 years, investors in gold have made nearly five times their money. Over the same time, Wall Street has gone sideways. But few investments seem to attract more myths and hokum than gold and other precious metals. At the risk of inflaming those on both sides of the issue, here are 10." How to tilt the investing odds in your favour 09/22/10   Behaviour "From late 1993 through mid-2008, I estimate that Canadian mutual fund investors experienced returns of 5.6 per cent annually - about 1 per cent a year more than GICs. Fetching an extra 1 per cent a year is not chump change, but it's not up to scratch. Investing is inherently uncertain. Investing successfully, however, is about tilting the odds in your favour. These tips can help you do just that, regardless of your preferred investment vehicle." Apple's Pricing Decoys 09/08/10   Behaviour "Next time you're sitting at an airport bar and hear two businesspeople debate whether Apple is a technology or design company, chime in: 'Nope. What Steve Jobs sells is pricing.' Pricing? You bet. Jobs is a master of using pricing decoys, reference prices, bundling, and obscurity to make you think his shiny aluminum toys are a good deal." How to tell when a CEO is lying 08/25/10   Behaviour "Assessing whether reported financial statements are intentionally misstated (or manipulated) is of considerable interest to researchers, creditors, equity investors, and governmental regulators. While there is a lot of information out there on deception detection, there is not a lot of useful information. This recent study, where the authors analyze linguistic features present in answers of CEOs and CFOs during quarterly earnings conference calls, caught my eye. Investors might want to pay attention" Slime mould like humans 08/12/10   Behaviour "This style of 'comparative valuation' may seem uncannily human, but it's also one that's shared by hummingbirds, starlings, honeybees and many other animals. In fact, Latty and Beekman think that it's a 'common feature of biological decision-making'. Certainly, it's a much easier process - comparing two nearby options is less 'computationally intensive' than making absolute judgments about each of them." The meaning of fair 08/02/10   Behaviour "Chapman University experimental economist Bart Wilson argues that fairness should not be construed as equality of outcome, but as a process in which everyone plays by the rules and honors agreements. When lawmakers obscure the definition of this word, it may result in policy that is ineffective, arbitrary, and fundamentally unfair." Niederhoffer on being wrong 06/24/10   Behaviour "I made so many errors there it's pathetic. I made one of my favorite errors: "The mouse with one hole is quickly cornered." That is key. There are certain decisions you make in life that are irreversible, that lead you into a path you can't get out of, and unless you have more than one escape clause, the adversary can gang up on you and destroy you. What else? I didn't have a proper foundation. I was not sufficiently private in my activities. I was playing poker with men named Doc. I must've made a hundred errors on that one, but those are five or six that come to mind." Something's wrong but you'll never know 06/22/10   Behaviour "Knowing what you don't know? Is this supposedly the hallmark of an intelligent person? ... That's absolutely right. It's knowing that there are things you don't know that you don't know. Donald Rumsfeld gave this speech about 'unknown unknowns.' It goes something like this: 'There are things we know we know about terrorism. There are things we know we don't know. And there are things that are unknown unknowns. We don't know that we don't know.' He got a lot of grief for that. And I thought, 'That's the smartest and most modest thing I've heard in a year.'" His own worst enemy 06/11/10   Behaviour "Terrance Odean, a finance professor at the University of California, Berkeley's Haas School of Business, has spent his career studying a very specific type of investor: the one who is overconfident, shortsighted and far more likely to snap up a stock at the worst possible moment than to make the kind of contrarian bet that pays off in the long run. Odean's specialty, in other words, is the average investor." Green from envy 05/29/10   Behaviour "However, if our actions are based not on absolute wealth but relative wealth - an envy-based economy - the market would need no risk premium. Falkenstein developed the empirical case for this in his January, 2010, paper 'Risk and Return in General: Theory and Evidence.' But other researchers have pointed to similar envy-indicating results, including Cornell economist Robert Frank, whose research showed that most people would choose to live in a world where they made $100K and their peers made $85K, over a one in which they made $110K and their peers made $200K." Metric mania 05/17/10   Behaviour "In the realm of public policy, we live in an age of numbers. To hold teachers accountable, we examine their students' test scores. To improve medical care, we quantify the effectiveness of different treatments. There is much to be said for such efforts, which are often backed by cutting-edge reformers. But do wehold an outsize belief in our ability to gauge complex phenomena, measure outcomes and come up with compelling numerical evidence? A well-known quotation usually attributed to Einstein is 'Not everything that can be counted counts, and not everything that counts can be counted.' I'd amend it to a less eloquent, more prosaic statement: Unless we know how things are counted, we don't know if it's wise to count on the numbers." Do bonuses create cheaters? 05/17/10   Behaviour "The common practice of granting bonuses to people who hit a certain target is supposed to boost their productivity. Turns out, it may be encouraging them to cheat, according to a new paper by University of Guelph and Ryerson University researchers." The disposition effect 05/02/10   Behaviour "Benjamin Graham once said, "An investor's chief problem, even his worst enemy, is likely to be himself." This is nowhere more true than when it comes to deciding to buy or sell a stock. We have an uncanny ability to buy stocks that are poor investments and sell stocks that are good investments. In essence, we buy high and sell low. In general, investors tend to shoot themselves in the foot - because they follow their instincts." Risks hide in plain sight 04/25/10   Behaviour "The good news: By presenting a simplified emphasis on fees, the researchers tripled the number of investors who favored the lowest-cost funds. The bad news: That tripling brought the proportion up only to 9% from 3%. "We still ended up with a 91% failure rate," says Prof. Laibson. Encouraged to focus on fees, investors nevertheless fixated on - and chased - past performance." Nudges gone wrong 04/24/10   Behaviour "But this starts to sound an awful lot like fine-tuned social engineering, which gets us away from the original vision of simple nudges making a better world. And it starts to sound exactly like the type of heavy-handed governing that Republicans may be quietly rebelling against by turning up their thermostats." [Spot the questionable math for extra fun.] The new paternalism 04/17/10   Behaviour "Real people are susceptible to cognitive biases that can lead to poor decisions. It's only natural to want to help them make better choices. But no one is immune to bias. Not social scientists, and certainly not policymakers. In translating behavioral science into policy, we may be led astray by the very same cognitive defects we wish to correct. New paternalist policies, and indeed the intellectual framework of new paternalism itself, create a serious risk of slippery slopes toward ever more intrusive paternalism." Creativity: a crime of passion 04/08/10   Behaviour "Creativity seems to be the "buzz word" of the 2000s. Society values it, companies need it, and employers want it. Or do they? What society claims to want and what is actually rewarded in practice are two different things. We claim to want innovation, but are innovation and creativity actually encouraged, or even allowed in most environments? What types of creative behaviors are rewarded by society, and what types are punished?" Why envy dominates greed 03/29/10   Behaviour "Economists generally think of self interest as maximizing the present value of one.s consumption, or wealth, independent of others. Wealth can be generalized to include not just their financial assets, but the present value of their labor income and even public goods. Adam Smith emphasized a self-interest that also recognized social position and regard for society as a whole, but this was well before anyone thought of writing down a utility function, which is a mathematically precise formulation of how people define their self interest. But what if economists have it all wrong, that self interest is primarily about status, and only incidentally correlated with wealth?" E.I. will wreck your portfolio 03/04/10   Behaviour "Now we learn that insensitivity training might also make you a better investor. If emotional intelligence attunes you to the moods of others it can only wreck your portfolio." Confirmation bias in action 02/23/10   Behaviour "At least we can all agree it is the other guys' politics and ideologies that are twisting facts and obscuring evidence." Be a sceptical economist 02/11/10   Behaviour "One of the biggest problems is one that psychology has faced since it began, to do with the authenticity of its experiments. If you take a bunch of people, shut them in a darkened room and make them do odd things, out of context, you might expect them to behave a bit peculiarly. Psychologists, on the other hand, tend to live in darkened rooms and regard doing odd things in them, often involving small, furry animals, as quite normal. So they see nothing wrong in this and are quite happy to write up the results of these experiments in order to help deepen our knowledge of human behaviour." Underdogs have more motivation? 02/09/10   Behaviour "Bosses and coaches who manage groups competing against lower-status rivals should use that fact to motivate the people at their company or team." What happens in the amygdala 02/09/10   Behaviour ""As you get older, you get less loss-averse," De Martino says, explaining that even the older control subjects were less fearful of loss. "Your perspective on life changes because you have fewer years to live." This effect could stem from age-related reductions in the volume of the amygdala - as we age, our brains shrink. De Martino says in addition to age, other factors such as income and education are also at play." Garry Kasparov, cyborg 02/01/10   Behaviour "What I love about Kasparov's algorithm - 'Weak human + machine + better process was superior to a strong computer alone and ... superior to a strong human + machine + inferior process' - is that it suggests serious rewards accrue to those who figure out the best way to use thought-enhancing software. (Or rather, those who figure out a way that's best for them; people always use tools in slightly different, idiosyncratic ways.) The process matters as much as the software itself. How often do you check it? When do you trust the help it's offering, and when do you ignore it?" In defense of home bias 02/01/10   Behaviour "Ideally, shouldn.t investors seek out the stocks that are likely to perform the best, regardless of where they are located in our world? Ideally, yes. Practically, there are difficulties." Justice, medieval style 02/01/10   Behaviour "Modern observers have roundly condemned ordeals for being cruel and arbitrary. Ordeals seem to reflect everything that was wrong with the Dark Ages. They're an icon of medieval barbarism and backwardness. But a closer look suggests something very different: The ordeal system worked surprisingly well. It accurately determined who was guilty and who was innocent, sorting genuine criminals from those who had been wrongly accused. Stranger still, the ordeal system suggests that pervasive superstition can be good for society. Medieval legal systems leveraged citizens. superstitious beliefs through ordeals, making it possible to secure criminal justice where it would have otherwise been impossible to do so. Some superstitions, at least, may evolve and persist for a good reason: They help us accomplish goals we couldn't otherwise accomplish, or accomplish them more cheaply." The self-fulfilling prophecy 01/16/10   Behaviour "Can you convince people that something is good merely by telling them that other people like it?" Less intuition, more evidence 01/12/10   Behaviour "Those of us who aren't wine snobs or speculators probably don't care too much about the prices of first-growth Bordeaux, but most of us would benefit from accurate predictions about such things as academic performance in college; diagnoses of throat infections and gastrointestinal disorders; occupational choice; and whether or not someone is going to stay in a job, become a juvenile delinquent, or commit suicide. I chose those seemingly random topics because they're ones where statistically-based algorithms have demonstrated at least a 17 percent advantage over the judgments of human experts. But aren't there at least as many areas where the humans beat the algorithms? Apparently not. A 2000 paper surveyed 136 studies in which human judgment was compared to algorithmic prediction. Sixty-five of the studies found no real difference between the two, and 63 found that the equation performed significantly better than the person. Only eight of the studies found that people were significantly better predictors of the task at hand. If you're keeping score, that's just under a 6% win rate for the people and their intuition, and a 46% rate of clear losses." The hidden persuaders of fast food 01/12/10   Behaviour "The Starbucks menu uses the "rule of three." The menu offers three sizes of coffees, given the enigmatic names of Tall, Grande, and Venti. (They're 12, 16, and 20 ounces respectively; 24 ounces for cold Venti drinks, to allow for ice.) Since Starbucks newbies won't know what they're getting, they tend to order the middle choice, Grande. In the psychology literature, this is known as "extremeness aversion" - people instinctively favor a middle choice, figuring it's safer. Guess what? You've just ordered two cups of expensive coffee. The Grande's sixteen ounces is two regular cups." The marshmallow and the cherry 01/02/10   Behaviour "Earlier in the year Jonah Lehrer explained in the New Yorker how cool deferred gratification is and how we need to teach it to our kids, the younger the better. Now, in the New York Times, John Tierney suggests that it's really an insidious habit for grownups, sacrificing real enjoyment for the mirage of an even better future. Can everything good be bad for you?" Carpe Diem? Maybe tomorrow 01/02/10   Behaviour "For once, social scientists have discovered a flaw in the human psyche that will not be tedious to correct. You may not even need a support group. You could try on your own by starting with this simple New Year's resolution: Have fun ... now!" The neuroscience of screwing up 12/30/09   Behaviour "The reason we're so resistant to anomalous information - the real reason researchers automatically assume that every unexpected result is a stupid mistake - is rooted in the way the human brain works. Over the past few decades, psychologists have dismantled the myth of objectivity. The fact is, we carefully edit our reality, searching for evidence that confirms what we already believe. Although we pretend we're empiricists - our views dictated by nothing but the facts - we're actually blinkered, especially when it comes to information that contradicts our theories. The problem with science, then, isn't that most experiments fail - it's that most failures are ignored." Blame it on the brain 12/26/09   Behaviour "Willpower, like a bicep, can only exert itself so long before it gives out; it's an extremely limited mental resource. Given its limitations, New Year's resolutions are exactly the wrong way to change our behavior. It makes no sense to try to quit smoking and lose weight at the same time, or to clean the apartment and give up wine in the same month. Instead, we should respect the feebleness of self-control, and spread our resolutions out over the entire year." Menu mind games 12/11/09   Behaviour "William Poundstone dissects the marketing tricks built into menus - for example, how something as simple as typography can drive you toward or away from that $39 steak." Buying green makes you do bad things 12/11/09   Behaviour "While mere exposure to green products may 'prime' us to think about social consciousness and perhaps improve our behavior, if we actually buy a green product, we appear to take it as license to act like jerks." The importance of checking 12/11/09   Behaviour "Newman said, 'ah, that's the spinach mistake.' Knowing only that spinach is good for me and unaware of any vegetable transgressions, I asked him to elaborate on his response. The story is that in 1870, a German chemist named Erich von Wolf collected the nutritional value of green vegetables, including spinach. In transposing the figures from his notebook to the final table, von Wolf apparently misplaced a decimal point, hence overstating spinach's iron content by a factor of ten. (Roughly 35 mg per 100 g serving versus 3.5 mg.) Once in print, the perception of spinach's nutritional value took on a life of its own." How much choice would you like? 11/24/09   Behaviour "Benjamin Scheibehenne, a psychologist at the University of Basel, was thinking along these lines when he decided (with Peter Todd and, later, Rainer Greifeneder) to design a range of experiments to figure out when choice demotivates, and when it does not. But a curious thing happened almost immediately. They began by trying to replicate some classic experiments - such as the jam study, and a similar one with luxury chocolates. They couldn't find any sign of the 'choice is bad' effect." Is there a method in cellphone madness? 11/16/09   Behaviour "Here's a consolation prize to the millions who recoil in bafflement from cellphone companies' labyrinthine price plans, with their ever more intricate arrays of minutes, messages and megabytes: Economists don't understand them, either." Bad decisions may be contagious 11/13/09   Behaviour "Like the flu, a person's emotional state can be contagious. Watch someone cry, and you'll likely feel sad; think about the elderly, and you'll tend to walk slower. Now a study suggests that we can also catch someone else's irrational thought processes." Are liberals smarter than conservatives? 11/06/09   Behaviour "Who are smarter, liberals or conservatives? This is the kind of question that could spark fierce and endless debates between political opponents, but what if we could know, scientifically, that one side has the edge in brainpower? Should that change how we think about political issues? Though few partisans on either side are likely to admit it, most people at one time or another have suspected that their political opponents are dim bulbs." Innovation is not rewarded 11/06/09   Behaviour "We all benefit from the Pasteurs, the Fords, even the Bill Gates. They create things with spillovers. Yet, you average innovator is simply wrong, hearing dog whistles others don't, and like Van Gogh getting his appreciation after dying, most innovators do their bidding for those they do not know. Deviating from the consensus produces all the things that has elevated us from hunter-gatherers, yet, the record for the individual innovators themselves, is decidedly negative." Extremists share their opinions 10/21/09   Behaviour "People with relatively extreme opinions may be more willing to publicly share their views than those with more moderate views, according to a new study. The key is that the extremists have to believe that more people share their views than actually do, the research found." How nonsense sharpens the intellect 10/08/09   Behaviour "Still, the new research supports what many experimental artists, habitual travelers and other novel seekers have always insisted: at least some of the time, disorientation begets creative thinking." Marshmallows and self-control 10/03/09   Behaviour "Psychology professor Walter Mischel's 1960s experiment involving children, sugary sweets, and self-control has become a classic. The set-up is simple. A researcher lets a child pick a favorite food from a tray of cookies, marshmallows, candies, pretzels, and other sweets. The researcher puts that treat on the table in front of the child and makes an offer. The child can eat it now. Or the child can wait a few minutes while the researcher goes to check on something else, and get two treats when the researcher returns. If the child loses patience, she can ring a bell, the researcher will come right back, and the child can eat the treat right away. She does not get another one, of course." [Be sure to watch the cute video.] Believing everything you read 09/18/09   Behaviour "You shouldn't believe everything you read, yet according to a classic psychology study at first we can't help it." Hunches prove to be valuable 08/05/09   Behaviour "Everyone has hunches - about friends. motives, about the stock market, about when to fold a hand of poker and when to hold it. But United States troops are now at the center of a large effort to understand how it is that in a life-or-death situation, some people's brains can sense danger and act on it well before others. do." Thaler responds to Posner 08/04/09   Behaviour "The proposal that particularly draws Posner's ire is the idea that the Agency would designate a few types of "plain vanilla" mortgages and suggest that unsophisticated shoppers concentrate their search on those. The idea is very similar to the standard leases used in most rental agreements. The landlord can change the terms of the standard lease, but those changes are done in a way that makes them quite salient to prospective tenants, and the tenants are alerted to the fact that these terms are not the usual ones. The plain vanilla mortgages would all have the same terms (like the standard leases) and issuers who want to offer different kinds of mortgages would have to make their modifications clear. Only mortgages judged to be very dangerous would be banned." When good thinking goes bad 08/02/09   Behaviour "What do Apple, Inc.'s craziest fanatics, Wall Street, and the case of the Harvard professor and the police officer have in common?" Cocksure 07/20/09   Behaviour "From an individual perspective, it is hard to distinguish between the times when excessive optimism is good and the times when it isn't. All that we can say unequivocally is that overconfidence is, as Wrangham puts it, 'globally maladaptive.' When one opponent bluffs, he can score an easy victory. But when everyone bluffs, Wrangham writes, rivals end up 'escalating conflicts that only one can win and suffering higher costs than they should if assessment were accurate.'" What's your financial IQ? 07/16/09   Behaviour "These particular questions are the mental equivalent of optical illusions. They appear to be easy, but aren't. Tests of similar complexity which are more obviously difficult yield more correct answers so it's not simply a question of basic maths skills. Something else is going on here. Something, it turns out, that may completely screw up psychology's ideas about the way people think about finance." The invisible hand, trumped by Darwin? 07/11/09   Behaviour "Smith's basic idea was that business owners seeking to lure customers away from rivals have powerful incentives to introduce improved product designs and cost-saving innovations. These moves bolster innovators. profits in the short term. But rivals respond by adopting the same innovations, and the resulting competition gradually drives down prices and profits. In the end, Smith argued, consumers reap all the gains. The central theme of Darwin's narrative was that competition favors traits and behavior according to how they affect the success of individuals, not species or other groups. As in Smith's account, traits that enhance individual fitness sometimes promote group interests. For example, a mutation for keener eyesight in hawks benefits not only any individual hawk that bears it, but also makes hawks more likely to prosper as a species. In other cases, however, traits that help individuals are harmful to larger groups." Trust 07/07/09   Behaviour "Being able to trust people might seem like a pleasant luxury, but economists are starting to believe that it's rather more important than that. Trust is about more than whether you can leave your house unlocked; it is responsible for the difference between the richest countries and the poorest." Would you wear a serial killer's sweater? 06/15/09   Behaviour "So, would you wear a serial killer's sweater? No blood spatters or anything. Heck, let's even say it has been dry cleaned. Psychologist and cognitive neuroscientist Bruce Hood has been known to brandish a cardigan belonging to the serial killer Fred West in the lecture hall. West tortured, raped, and murdered at least 12 women. Of course, a moment's reflection will reveal that his sartorial choices probably had nothing to do with his grisly hobby. And there's no possibility of catching serial killer disease from his sweater, right?" Capitalism and the cheating ethic 05/21/09   Behaviour "But when real neutral observers - a book agent, an editor at a newspaper, the paper's readers - no longer blanch at outright deviousness so frankly told, society has lost the mechanism that restrains its citizens from widespread cheating. That's exactly what happened in the mortgage meltdown, when untold numbers of applicants, their brokers, real estate agents and assorted others openly discussed how to collude in obtaining mortgages through fraudulent means without stopping to consider the implications for society as a whole. And without the slightest sense of embarrassment, apparently." Tis better to have bet and lost 05/21/09   Behaviour "Regrets always have a bitter taste, and those involving gambling tend to linger more than most. But a new paper argues that worrying about regrets may be costing you money." The secret of self-control 05/11/09   Behaviour "Angela Lee Duckworth, an assistant professor of psychology at the University of Pennsylvania, is leading the program. She first grew interested in the subject after working as a high-school math teacher. 'For the most part, it was an incredibly frustrating experience,' she says. 'I gradually became convinced that trying to teach a teen-ager algebra when they don't have self-control is a pretty futile exercise.' And so, at the age of thirty-two, Duckworth decided to become a psychologist. One of her main research projects looked at the relationship between self-control and grade-point average. She found that the ability to delay gratification - eighth graders were given a choice between a dollar right away or two dollars the following week - was a far better predictor of academic performance than I.Q. She said that her study shows that 'intelligence is really important, but it's still not as important as self-control.'" Bankers would rather work for $0.00 04/17/09   Behaviour "Sometimes asking someone to do something for nothing is more powerful than paying them." A little cheating costs a lot 04/17/09   Behaviour "Behavioural economists are having a field day with the market meltdown, as traditional cost-benefit analysis and self-interest give way to more penetrating insights about how people can be systematically wrong - and how small acts can lead to broader failures." So you want to be the next Warren Buffett? 04/12/09   Behaviour "The way I see it, there are really only four sources of economic moats that are hard to duplicate, and thus, long-lasting. One source would be economies of scale and scope. Wal-Mart is an example of this, as is Cintas in the uniform rental business or Procter & Gamble or Home Depot and Lowe's. Another source is the network affect, ala eBay or Mastercard or Visa or American Express. A third would be intellectual property rights, such as patents, trademarks, regulatory approvals, or customer goodwill. Disney, Nike, or Genentech would be good examples here. A fourth and final type of moat would be high customer switching costs. Paychex and Microsoft are great examples of companies that benefit from high customer switching costs." Why we think it's OK to cheat 04/10/09   Behaviour "Behavioral economist Dan Ariely studies the bugs in our moral code: the hidden reasons we think it's OK to cheat or steal (sometimes). Clever studies help make his point that we're predictably irrational -- and can be influenced in ways we can't grasp." Dan Ariely interview 03/24/09   Behaviour "Here's a reality check for you. The total cost of every burglary theft, fraud, autotheft in US in 2004 was $16-Billion dollars. That same year regular businesses in the US lost $600-Billion dollars to employee theft and fraud. So who's the cheat? Behavioural economists like Dan Ariely understand how dishonesty and cheating is part of our less than rational relationship with money." [Audio MP3] Large stakes and big mistakes 03/24/09   Behaviour "Workers in a wide variety of jobs are paid based on performance, which is commonly seen as enhancing effort and productivity relative to non-contingent pay schemes. However, psychological research suggests that excessive rewards can in some cases result in a decline in performance. To test whether very high monetary rewards can decrease performance, we conducted a set of experiments in the US and India in which subjects worked on different tasks and received performance-contingent payments that varied in amount from small to very large relative to their typical levels of pay. With some important exceptions, very high reward levels had a detrimental effect on performance." Morals: the one thing markets don't make 03/21/09   Behaviour "Often, these past months, I have found myself going back to one of the most painful conversations I have had. It was with one of Britain's leading industrialists. He had led his company to consistent success for decades. When I met him he had retired and was near the end of his life. He was not a religious man but he was a deeply moral one. He spoke of the principles that had guided him in business and of the salary he had drawn. It was not negligible, but it was modest. What pained him was that his successor had awarded himself a salary ten times that amount, while systematically destroying the company he had so carefully built." Confessions of a pundit 03/11/09   Behaviour "Prominent experts, therefore, are often simply those whose voices are in harmony with today's mood and who have an easier time selling their stories. That doesn't mean that the analysis is inherently flawed - only that it is inherently market-driven." Outperform 99% of your neighbors 02/11/09   Behaviour "If all you had to do was buy good (versus great) investments and then behave correctly that changes everything. I decided that the search for alpha didn.t matter (turns out it.s a fool.s errand anyway, but I didn.t know that at the time) if you lost 7% in the process just because of bad behavior. I decided to leave the complex task of finding the best investment to smart guys with the big computers; I was going to focus on the simple problem of helping people behave correctly. It turns out that outperforming your neighbor is not about finding better investments, it is about behaving better." 100 cents feels like it's worth more than $1 01/22/09   Behaviour "We all know that $1 is equal to 100 cents. But a new study suggests that, in some situations, people may behave as if 100 cents actually has more value." Failure of morality, not of capitalism 01/20/09   Behaviour "What we are hearing and seeing, in other words, is a failure of morality, not of capitalism. How do we get back to the old Adam Smith/Benjamin Franklin idea of free enterprise based on a moral foundation?" Why you can't trust your gut 01/11/09   Behaviour "Turns out, the people who had imagined the stressful events said they could identify more patterns in the pictures than did the control group. The pictures, by the way, were completely random. The patterns didn't exist. The academics weren't finished. They showed one group a headline that read "Rough Seas Ahead for Investors" and showed another group the headline "Smooth Sailing Ahead for Investors." The two groups then received some fragmentary information about a couple of companies. You guessed it: The group that was worried about "rough seas" spun out more unwarranted theories about what was going on with the companies than the other group did." Everyone's watching 11/03/08   Behaviour "Markets work best when investors are thinking for themselves, and tend to go awry when the obsession with what everyone else is doing becomes a dominant concern. Maybe what investors really need is to periodically take a market-information vacation." Perceptions about income influence lottery purchases 08/09/08   Behaviour "Do you feel poor ... or at least a lot poorer than your friends and neighbors or the people you pass on the street? Then be careful. There is evidence that this feeling will cause you to do ridiculous things with your money and perhaps undermine your opportunity to eventually become richer. You might even throw your money away on the lottery." Bad news sparks a stampede 07/23/08   Behaviour "After IndyMac Bancorp failed, customers waited in line for hours to collect their money. The police had to be called in to quell the crowd. The scenes brought to mind dire moments from the Great Depression. On the Federal Deposit Insurance Corp. Web site, IndyMac customers were told: ''If the balance in your account . . . is less than $100,000, no action is required on your part at this time.'' The money is insured. Many behavioral economists watching people herd in line at the bank -- or flush their portfolios of Fannie Mae and Freddie Mac stock -- sense a deep even primal, response at play. I suppose the only way to say this is to just say it: People are acting like frogs. When a group of frogs senses they are about to be visited by the dreaded snake, they do not hop in separate directions. They bunch up together. And they fight to get in the middle. Sheep do it. Minnows do it. It turns out that humans do, too, particularly in financial crashes." The new economics and the pursuit of happiness 07/01/08   Behaviour "The revolution begun by Kahneman and Tversky is now some three decades old, and it is generating excitement well beyond the borders of academe--and so this is a good time to examine whether it has lived up to its promise. Bruno S. Frey's Happiness and Dan Ariely's Predictably Irrational together offer a fine occasion to begin such a reckoning. Not all the revolutionaries in economics are discussed by Frey; the media star Levitt does not even make an appearance. Ariely, who teaches at MIT, helps to fill in the picture. Like Levitt, he has climbed the best-seller list with some of the most counterintuitive findings of behavioral economics. One is dry and humorless, the other is sprightly and inviting, but between them these books offer an overview of what this new economics is all about, and enable us to evaluate whether it is as innovative as its adherents claim." It's mine, I tell you 06/20/08   Behaviour "The endowment effect was controversial for years. The idea that a squishy, irrational bit of human behaviour could affect the cold, clean and rational world of markets was a challenge to neoclassical economists. Their assumption had always been that individuals act to maximise their welfare (the defining characteristic of economic man, or Homo economicus). The value someone puts on something should not, therefore, depend on whether he actually owns it. But the endowment effect has been seen in hundreds of experiments, the most famous of which found that students were surprisingly reluctant to trade a coffee mug they had been given for a bar of chocolate, even though they did not prefer coffee mugs to chocolate when given a straight choice between the two." Why we're gloomier than the economy 06/19/08   Behaviour "Ask Americans how the economy is doing, and their answer is stark: It is not just bad, it is run-for-the-hills terrible. Consumer confidence is at its lowest level in almost 30 years. Only 12 percent of Americans think the economy is in good shape. On the Internet, comparisons to the Great Depression are widespread. But the reality is different. According to most broad measures of how the economy is doing, it's not all that grim." 'Brainwashing 101 for dummies' (and investors!) 06/18/08   Behaviour "Yes, Wall Street's got a great con game going, but it only works because America's 95 million investors are willing victims, love playing along, actually letting Wall Street get away with it! I call it "Brainwashing 101 for Dummies." Insiders use fancier terms like neuroeconomics, behavioral finance and the new "science of irrationality." But labels aside, you're being brainwashed. And Wall Street's laughing all the way to the bank at how easy it is to dupe gullible investors by using the 11 rules of "Brainwashing 101 for Dummies." We got them for you: Everything you'll ever need to know about the big con." Want to be rich? Don't get too happy 06/03/08   Behaviour "University of Illinois psychology professor Ed Diener and others have established that while money won't buy happiness, happy people tend to earn more than sad people. A few years ago, however, investing legend John Templeton wrote Diener a letter that had the professor scratching his head. "Is life satisfaction always great?" Templeton asked. "Maybe a little bit of dissatisfaction is okay." "I started wondering," Diener recalls, "do you have to be happier and happier? How happy is happy enough?" Thus, a new study was born. Diener and his colleagues used data from the World Values Survey, which measures the happiness of respondents on a scale of 1 to 10 (with 10 the happiest). They found that income did indeed increase along with happiness but not at the very top." The happiness ... gap 06/02/08   Behaviour "Here's a bit of bad news for all my latte-loving, liberal-leaning friends who believe that jobs in retail stink, traditional religion is for morons, and income inequality has made society a lot worse off. You're a miserable bunch. I don't mean miserable, as in contemptible. I mean that as a group, you are not particularly happy people. In fact, you're far less likely to be happy with your lives than, say, a gun-owning truck driver who goes to church, shops at Wal-Mart, and makes half the money you do." How thinking costs you 05/24/08   Behaviour "Looking at data from every trade made by all investors in Taiwan from 1995 to 1999, Odean discovered that the "aggregate portfolio of individual investors suffers an annual performance penalty of 3.8 percentage points," which includes trading costs. If investors had simply bought the index and not traded at all, they would have done about 3.5 percent better. The amount of money lost was equivalent to 2.2 percent of Taiwan's gross domestic product." Rebate psychology 05/18/08   Behaviour "Changing the way that identical income is described can significantly affect how people spend it. In an experiment I conducted at Harvard with my colleagues Dennis Mak and Lorraine Chen Idson, participants were given a $50 check. They were told that this money came from a faculty member's research budget, financed indirectly through tuition dollars. Roughly half of the participants had this money described as a 'rebate,' whereas the others had it described as a 'bonus.' When unexpectedly contacted one week later, participants who got a 'rebate' reported spending less than half of what those who got a 'bonus' reported spending ($9.55 versus $22.04, respectively). We observed this same pattern in other experiments when participants were asked to keep a written record of their spending, as well as in experiments in which the participants were allowed to purchase items in the lab. 'Rebates' are understood to be returns from money already spent. A rebate, psychologically speaking, is the return of a loss of one's own money rather than a pure gain provided by someone else, so it is unlikely to be seen as extra spending money." The meritocracy paradox 04/13/08   Behaviour "In business, merit supposedly determines pay. But in fact, it's often the other way around, with pay determining merit. In controlled studies in which people were assigned random tasks with random pay, psychologists discovered people behave as if the higher-paid individuals have superior ability. And they do so even if they know that the pay scale was arbitrary. Outside of the laboratory the calculation of someone's ability is even more tricky." And behind door no. 1, a fatal flaw 04/10/08   Behaviour "The Monty Hall Problem has struck again, and this time it's not merely embarrassing mathematicians. If the calculations of a Yale economist are correct, there's a sneaky logical fallacy in some of the most famous experiments in psychology." Behind Monty Hall's doors 04/10/08   Behaviour "Mr. Hall continued: "Now do you see what happened there? The higher I got, the more you thought the car was behind Door 2. I wanted to con you into switching there, because I knew the car was behind 1. That's the kind of thing I can do when I'm in control of the game. You may think you have probability going for you when you follow the answer in her column, but there's the pyschological factor to consider." He proceeded to prove his case by winning the next eight rounds. Whenever the contestant began with the wrong door, Mr. Hall promptly opened it and awarded the goat; whenever the contestant started out with the right door, Mr. Hall allowed him to switch doors and get another goat. The only way to win a car would have been to disregard Ms. vos Savant's advice and stick with the original door. Was Mr. Hall cheating? Not according to the rules of the show, because he did have the option of not offering the switch, and he usually did not offer it." What makes a tightwad 03/20/08   Behaviour "The researchers were surprised to find that despite perceptions that people always overspend, chronic underspending was far more widespread than thought, with tightwads outnumbering spendthrifts by 3 to 2. But researcher Scott Rick from the University of Pennsylvania said they found it wasn't the cost of an item or someone's income level that had an impact on their spending. Tightwads reported feeling an emotional pain when handing over their money. Spendthrifts, on the other hand, felt pleasure making a purchase." Why people believe weird things about money 01/14/08   Behaviour "Would you rather earn $50,000 a year while other people make $25,000, or would you rather earn $100,000 a year while other people get $250,000? Assume for the moment that prices of goods and services will stay the same. Surprisingly -- stunningly, in fact -- research shows that the majority of people select the first option; they would rather make twice as much as others even if that meant earning half as much as they could otherwise have. How irrational is that?" A short course in thinking about thinking 12/15/07   Behaviour "And some fifteen years ago or so, I started studying whether people remembered correctly what had happened to them. It turned out that they don't. And I also began to study whether people can predict how well they will enjoy what will happen to them in future. I used to call that "predictive utility", but Dan Gilbert has given it a much better name; he calls it "affective forecasting". This predicts what your emotional reactions will be. It turns out people don't do that very well, either." Of blind squirrels and flying pigs 11/22/07   Behaviour "The dollar is collapsing and global investors are dumping dollars so it will continue to fall. That in turn will lead to higher inflation and then the Fed will have to raise interest rates. Oil is closing in on $100 a barrel. We have the worst housing market since the Great Depression. There is a financial crisis caused by the subprime mortgage debacle. Banks are tightening credit standards. And if you needed more reasons to believe the stock market was headed south you could always throw in global warming. Given all of these obvious reasons to be bearish about stocks, what should investors do? The answer is nothing, except to adhere to their well-thought-out plans. There are many reasons for ignoring even what seems to be obviously bearish information. Let.s see why this is the case." From ants to people, an instinct to swarm 11/14/07   Behaviour "By studying army ants - as well as birds, fish, locusts and other swarming animals - Dr. Couzin and his colleagues are starting to discover simple rules that allow swarms to work so well. Those rules allow thousands of relatively simple animals to form a collective brain able to make decisions and move like a single organism. Deciphering those rules is a big challenge, however, because the behavior of swarms emerges unpredictably from the actions of thousands or millions of individuals." Are you really such a daredevil? 11/04/07   Behaviour "The point is to position your portfolio in a way that makes it less likely that your emotions will get the better of you in a sharp downturn, and to do so while giving up as little as possible of the long-term gains that stocks offer. There are several sensible ways to do that." Can we turn off our emotions when investing? 09/29/07   Behaviour "How about understanding what our real tolerance for risk is? Mr. Zweig makes the usually overlooked point that our risk tolerance is not a fixed thing, but changes from day to day, even hour to hour, depending on our mood. Indeed, research has shown that the way we think about risk often depends on how others have framed the question for us. Amazingly, for instance, people tend to be more sanguine about risk when it is expressed as a percentage (10 percent, say) than when it is expressed as a frequency (one out of 10)." Was Harry Potter inevitable? 09/17/07   Behaviour "The study's setup allowed for a very explicit test of social influence. The independent group, unswayed by the opinion of others, provided a reasonable indicator of song quality. If social influence is unimportant, you would expect the song rankings - and downloads - to be similar in all nine worlds. On the other hand, if social influence is important, small differences in the initial download pattern in the social worlds would lead to very different rankings. Cumulative advantage triumphs intrinsic quality. What did the study show? Well, song quality did play a role. A top-five song in the independent world had about a 50 percent chance of finishing in the top five for a social influence world. And the worst songs rarely topped the charts. Beyond that, the scientists found social influence played a huge part in success and failure. In the eight social worlds, the songs downloaded early in the experiment affected the songs downloaded later. Since the patterns of download were different in each social world, so were the outcomes. One song, "Lockdown" by 52metro, illustrates the point. The tune was ranked 26 in quality in the independent world, effectively average. Yet it was the number 1 song in one of the social influence worlds, and number 40 in another. Social influence catapulted an average song to hit status in one world and delegated it to the cellar in another." Persistence of myths 09/05/07   Behaviour "The federal Centers for Disease Control and Prevention recently issued a flier to combat myths about the flu vaccine. It recited various commonly held views and labeled them either "true" or "false." Among those identified as false were statements such as "The side effects are worse than the flu" and "Only older people need flu vaccine." When University of Michigan social psychologist Norbert Schwarz had volunteers read the CDC flier, however, he found that within 30 minutes, older people misremembered 28 percent of the false statements as true. Three days later, they remembered 40 percent of the myths as factual. Younger people did better at first, but three days later they made as many errors as older people did after 30 minutes. Most troubling was that people of all ages now felt that the source of their false beliefs was the respected CDC." Money isn't everything 07/10/07   Behaviour "Psychologists have known for a long time that economists are wrong. Most economists - at least, those of the classical persuasion - believe that any financial gain, however small, is worth having. But psychologists know this is not true. They know because of the ultimatum game, the outcome of which is often the rejection of free money." You got your tissues in my peanut butter 06/18/07   Behaviour "Indeed, many shoppers are repulsed by the thought that packages of food are touching items such as toilet paper, feminine hygiene products, cat litter, or even, in some cases, mayonnaise - all items that subconsciously repulse a lot of people." Benefiting from irrational investors 06/06/07   Behaviour "If you're like most people, you probably don't spend a great deal of time monitoring your investments. So when another company uses stock to acquire a firm in which you hold a stake, what do you do with the new shares you suddenly own of a company that you never intended to buy in the first place? Logic suggests that you would be likely to sell those shares. But research by Associate Professor Malcolm Baker, Professor Joshua Coval, and Harvard University professor Jeremy C. Stein shows that 80 percent of individual investors and 30 percent of institutional investors appear to be more inertial than logical. They take the default option, passively accepting the shares offered as consideration in stock mergers and acquisitions." What I learned from 'The Price Is Right' 06/06/07   Behaviour "Bob Barker, who is taping his final "Price" episode today for broadcast June 15 on CBS, was one of my childhood idols. He was impeccably tailored, and he genuinely engaged the contestants, even when the outrageously T-shirted hoi polloi didn't match the effortless grace of the host. More important, watching "The Price Is Right" taught me an enormous amount about money. Naturally, I loved the showcases, the cars and "Barker's Beauties." But what kept me coming back was the daily lesson in the principles of behavioral finance. If you wanted to know how to exploit - or get trapped by - market inefficiencies and the often irrational behavior of competitors, "The Price Is Right" was essential." It feels good to be good 05/29/07   Behaviour "The results were showing that when the volunteers placed the interests of others before their own, the generosity activated a primitive part of the brain that usually lights up in response to food or sex. Altruism, the experiment suggested, was not a superior moral faculty that suppresses basic selfish urges but rather was basic to the brain, hard-wired and pleasurable." Is the market rational? 05/07/07   Behaviour "That brings us back to Thaler, who was working on a Ph.D. in economics at Rochester in the early 1970s. His dissertation was an attempt to put a value on human life by looking at how much more people were paid to work in risky fields like mining and logging. He was working on the assumption, of course, that people rationally weighed the risk of death in their decision to accept a job. Along the way Thaler decided to ask a few friends how much they'd be willing to pay to eliminate a one-in-1,000 chance of immediate death and how much they would have to be paid to willingly accept an extra one-in-1,000 chance of immediate death. What he found was that they wouldn't pay much for the extra margin of safety but demanded huge sums to accept added risk--which isn't, strictly speaking, rational. "I came to two conclusions about these answers," Thaler wrote years later. "(1) I had better get back to running regressions if I want to graduate, and (2) the disparity between buying and selling prices was very interesting." Thaler did discuss his subversive thoughts with a few trusted colleagues and people from other disciplines. One of those people happened to be a newly minted psychology Ph.D., who sent Thaler a copy of a 1974 article by Israeli psychology professors Amos Tversky and Daniel Kahneman. (Tversky died in 1996; if he were still around, he surely would have shared in this year's Nobel.) The article argued that in making decisions involving probability and risk, people rely on mental shortcuts that "are highly economical and usually effective but ... lead to systematic and predictable errors." It was that last part that was so significant. That people make judgment errors wasn't news, but if those errors were "systematic and predictable," well, that was something an equation-wielding economist could get up and run with." Your brain on Gucci 04/27/07   Behaviour "Economists used to think consumers made rational purchasing decisions. But a new field of research is revealing neural forces that leave classical theorists scratching their heads" The executioner of excellence 04/10/07   Behaviour "And speaking of successful money managers, while Warren Buffett has not exactly taken the same vow of "poverty," he does share Swensen's otherworldliness, living in the same modest house for several decades, fitting out his living room at the Omaha Furniture Mart, and subsisting on Coke and cheeseburgers. Is there a connection between Buffet and Swensen.s relative disdain of the material world and their brilliance as money managers and, more generally, of the superior performance of endowments and public pension plans? You bet there is. Cognitive psychologists have long known that we are very poor judges of what makes us happy: the pleasure from money, fame, possessions, and power turns out to be quite transient (and so is the pain from things which we think would permanently sadden us: the depression caused by sudden, permanent blindness or paraplegia, for example, is surprisingly short-lived). Three things provide long-lasting satisfaction, as quantitatively measured by academic psychologists: autonomy, meaningful contact with others, and the development and exercise of competence." [Correction: Illinois Tool Works generally pays 1.1 or less times annual revenue for its acquisitions.] The riches of irrationality 03/14/07   Behaviour "Buy low and sell high. In other words, buy when it's cloudy outside but sell when the sun is shining. Yes, aspects of the weather do affect stock markets after all. In a 2001 paper, Ross School of Business Prof. Tyler Shumway and a colleague showed the existence of the sunshine effect, which says the amount of cloud cover in the vicinity of major international stock markets has a significant correlation with trading patterns for the day. Moreover, this significance rises into relevance as researchers show that the sunshine effect will deliver higher returns - even taking into account the transaction costs incurred with trading to the vicissitudes of meteorology." Gimme more 01/26/07   Behaviour "The more money we have, the less we want to share with other people. Few of us like to think of ourselves as being greedy, although we might describe ourselves as being self-sufficient or financially independent. And many of us like to think that if we suddenly received a wind-fall, we'd share the wealth. Yeah, sure. The trouble is that self-perception is often very different from reality." You are what you expect 01/20/07   Behaviour "A couple of decades ago, the psychologist Shelley Taylor proposed that 'positive illusions' like excessive optimism were critical to mental health. People who saw their abilities and chances realistically, she noted, tended to be in a state of depression. (Other psychologists, taking a closer look at the data, countered that depressives actually show more optimism bias than nondepressives: given the way things turn out for them, they are not pessimistic enough.) And there is new evidence that optimism may in some ways be self-fulfilling." The triumph of unreason? 01/18/07   Behaviour "People's shopping behaviour therefore seems to have piggy-backed on old neural circuits evolved for anticipation of reward and the avoidance of hazards. What Dr Loewenstein found interesting was the separation of the assessment of the product (which seems to be associated with the nucleus accumbens) from the assessment of its price (associated with the insular cortex), even though the two are then synthesised in the prefrontal cortex. His hypothesis is that rather than weighing the present good against future alternatives, as orthodox economics suggests happens, people actually balance the immediate pleasure of the prospective possession of a product with the immediate pain of paying for it." The voices in my head say 'Buy It!' Why argue? 01/16/07   Behaviour "Now that scientists have spotted the pain and pleasure centers in the brain, they.ve moved on to more expensive real estate: the brain.s shopping center. They have been asking the big questions: What is the difference between a tightwad's brain and a spendthrift's brain?" Economics discovers its feelings 12/20/06   Behaviour "The hedonimeter was never invented, and for a century or so economists fell silent about both weights on man's scales. They studied outward behaviour, not inward feelings; choices made, not pleasures taken. But in recent years, economists have become newly confident that they can measure utility as Bentham conceived it: as a quantum of pleasure or pain. How do they do it? Mostly they just ask people. Daniel Kahneman, a psychologist at Princeton University who won the Nobel prize for economics in 2002, reckons people are not as mysterious as less nosy economists supposed." Free to choose? 12/20/06   Behaviour "For millennia the question of free will was the province of philosophers and theologians, but it actually turns on how the brain works. Only in the past decade and a half, however, has it been possible to watch the living human brain in action in a way that begins to show in detail what happens while it is happening. This ability is doing more than merely adding to science's knowledge of the brain's mechanism. It is also emphasising to a wider public that the brain really is a just mechanism, rather than a magician's box that is somehow outside the normal laws of cause and effect. Science is not yet threatening free will's existence: for the moment there seems little prospect of anybody being able to answer definitively the question of whether it really exists or not. But science will shrink the space in which free will can operate by slowly exposing the mechanism of decision making." I want it now! 11/25/06   Behaviour "One of my daughter's favorite bedtime stories is A Birthday for Frances. I like it, too, for the charming illustrations, hilarious dialogue, and instruction in cutting-edge behavioral economics. Frances, the story's young heroine, secures an advance on her allowance in order to buy bubblegum and a Chompo bar as a birthday present for her little sister Gloria. Yet, as she returns with her father from the sweet shop, Chompo bar in hand, Frances begins to think of all kinds of reasons why she, not Gloria, should eat the chocolate." Whiff of cash can be a sour note 11/16/06   Behaviour "Merely the sight of money can change a person's behaviour, says a study done by an American marketing professor and financed by Canadian research institutions. Kathleen Vohs, an assistant professor at the University of Minnesota, and colleagues conducted a series of nine experiments in which people were asked to do puzzles or other tasks. The behaviour of people exposed to money was compared to others who were not prompted to think about it." Boom and gloom 11/13/06   Behaviour "A few years ago, the Nobel Prize-winning psychologist Daniel Kahneman conducted an odd experiment. He had a group of students eat a bowl of their favorite ice cream while listening to a particular piece of music eight days in a row. After the first day, Kahneman asked them to predict how they'd feel about the whole experience once it was over. Their predictions turned out to be way off base. Some students who thought that they'd hate having to eat the same flavor eight days in a row became addicted to it. Some who thought they'd enjoy the experience were eventually repulsed by it. The upshot: people may know when they're happy, but they often don't know what will make them happy. That poses a problem for the basic tenets of modern economics: that people act in their own self-interest most of the time, and that they usually know what that self-interest is."	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