A Catalog of Investing Errors

Love Lists

We're attracted to lists like moths to flames and netheads to clickbait. The Big List of Behavioral Biases is by some way the most popular page on this website, but it actually provides very little insight into investing successfully.

Behind this, though, lies a deeper truth. Lists are processed more easily by the brain, and they're perfectly optimized for the click and go environment that is the Internet. Here I explain why. In a list. Obviously.

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The Proper Etiquette for Market Panics

Don’t Eat Soup With a Fish Knife

When we’re operating in situations we’re not entirely sure about we follow a simple rule of thumb: we copy what other people are doing. So if we’re attending a fancy dinner with a place setting of sporks and splayds we’ll probably do whatever the people next to us are doing, in an attempt to look as though we understand the proper etiquette.

Which works beautifully as long as someone knows what to do, but can be disastrous if no one has a clue. Which is all the explanation we need to understand why, currently, investors are trying to eat soup with a fish knife.

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Fooled By Fluency

Q: How many animals of each kind did Moses take on the Ark?

Mere Exposure is Not Enough

In 1968 Robert Zajonc identified an odd behavioral bias, known as the mere exposure effect. This predicts that people will prefer items that they’re familiar with over those which they’re not – and that repeatedly exposing people to something will increase their preference for it. Cue a thousand feeble advertising campaigns.

There’s more than a hint of suspicion that behind mere exposure lies a more fundamental bias, one that spills over into all sorts of apparently irrational behaviour, some connected to money and others not. The idea is that familiarity breeds fluency, or ease of neural processing. So if you’re thinking that Moses had an Ark, that you should name your company q@l&tee or that your favorite whacky font type doesn't affect people's financial I.Q. then think again.

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