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Showing posts with label round number effect. Show all posts
Showing posts with label round number effect. Show all posts

Wednesday, 20 April 2011

Unit Bias: Cooking, Dieting and Investing

Feast and Famine

Cooking is, of all the inventions that have propelled mankind to the top of the food chain, probably the most important. Our dubious ascent to mastery of all we survey, other than investment bankers’ bonuses, is founded not on the skills of the scientist or the warrior but those of the humble cook.

From this it follows that, if cookery is the bedrock of our civilisation, and civilisation is the trigger for the development of the invention of money, then we ought to look for parallels between food related biases and investment biases. Indeed, it rather looks like the latter may be at least partially founded in the former.

Wednesday, 24 February 2010

Irrational Numbers: Price Clustering & Stop Losses

Universal Number Theory

One of the odder things about the universe is that the small set of numbers that define its structure, the so-called universal constants, don’t seem to have any structure of their own. You’d have thought that whatever immortal deity breathed life into the whole shebang would have at least have bothered to make sure that reality was defined in simple integer values your average gameshow contestant could remember. Yet someone’s just calculated Pi to more decimal places than you can read in a lifetime. The universe is strangely irrational, it would seem.

More likely, however, is that the irrationality lies in our heads. If you look at the way we treat numbers for investment purposes it’s probably a good job the infinite cosmos is specified in irrational numbers, because if it were otherwise we’d probably have sold it to the lowest bidder eons ago. Humans, it seems, treat numbers as an approximation to reality, unlike reality; which treats humans as an approximation to nothing.