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.

Read Full Post >>

Financial Memory Syndrome

False Memory Syndrome

There continues to be serious debate over the concept of false memory syndrome, where allegedly innocent people have been accused of serious crimes on the basis of memories which may have little basis in reality. Whatever really lies behind these cases it seems that planting fake memories in people’s brains is rather too easy to make the truth easy to ascertain.

The problem is that our memories are rather more malleable than we’re brought up to believe and it’s easy to create imaginary ones if you know what you’re doing – and often if you don't. Even worse, we can plant fake memories in our own minds and these are implicated in many of the behavioural issues that dog investors. Financial memory syndrome is at the heart of many a financial crisis.

Read Full Post >>