Capitalism in Crisis Again (Not)

Beans

I imagine we all think that what the world needs is a conference on the topic of Inclusive Capitalism, a jolly beanfest of the world’s great and the good dedicated to discussing how to renew trust in capitalism.  Even better to hold it in London, where the dreadful consequences and devastating effects of the last financial crisis are plain for all to see in the proliferation of designer retail outlets, the high rise growth of iconic skyscrapers and the influx of the world’s billionaire elite seeking democratic boltholes. 

But let’s face it, you couldn't get the world’s top brains to attend a conference in downtown Mogadishu could you? Although, frankly, that might provide them with a better perspective on the pros and cons of capitalism.

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The Turkey Illusion: An Audience With Gerd Gigerenzer

Thanksgiving Comes

Imagine you’re a turkey. Every day you're approached by a man with a bucket of corn who feeds you.  What kind of mental model of what happens when he appears do you think you’ll build up?

Gerd Gigerenzer, the Director of the Max Plank Institute for Human Development and the Harding Center for Risk Literacy uses this story to demonstrate the financial industry’s approach to modelling decision making under uncertainty.  We pay rich financial services organizations to make predictions based on the past that are only ever correct by chance, in order to absolve ourselves of responsibility for when they go wrong.  It’s a waste of time, money and talent.  Because, of course, Thanksgiving always comes.

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Maladaptive Investing

Integrated Bias

Writing a book about behavioral investing forces you to think about how everything fits together (quick plug: Investing Psychology: The Effects of Behavioral Finance on Investment Choice and Bias).  And one of the things that’s really striking about behavioral bias, when you take this wide angled view, is that it’s less about people behaving irrationally when it comes to finance, and more about finance behaving irrationally when it comes to people.

We evolved in sync with our environment, such that we were adapted to it.  But finance offers an entirely new type of landscape.  We’re maladapted to investing, which is why conquering our biases is impossible.  But recognizing them sure can help.

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A Load of Bull

Sporadic Bull 

In a recent (very nice) review the writer described me as a “sporadic blogger” which is, I suppose, nothing more than a statement of fact.  It’s nicely circular, though, as the one of the reasons for the infrequent posting was the subject of the review … 

The book, Investing Psychology: The Effects of Behavioral Finance on Investment Choice and Bias (Wiley Finance), is a review of the current state of behavioral finance for the non-expert – a task born out of hope as much as expectation, I should add, as the subject moves almost as fast as you can research it – and a plea for investors to take care, to avoid the less-than-well-signposted traps.  Finance is a world dominated by people whose relationship with the truth isn't so much tenuous as trivialized.  And a bull market attracts bull merchants like no other.

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