Can Behavioral Economics Be a Channel to Profits?

Psychological biases lead to market overreaction and underreaction, and it can be difficult to discern which is happening at any given point, according to a recent article in Bloomberg. “For an investor, the idea that other people are making poor decisions is a tantalizing one,” the article states, which raises the question of if and how the predictable irrational behavior of humans can translate into stock market patterns that can be exploited by traders. ” The article asserts that when people can’t understand what’s happening in the markets they “turn to psychological phenomena to try and explain it.” It cites […]

Richard Thaler’s Influence on Investors

Richard Thaler, who was just awarded a Nobel Prize in Economics, “upended how people think about financial markets, helping found the field of behavioral finance,” according to an article in The Wall Street Journal. As Justin Lahart of WSJ put it, “Nobody gets a Nobel Prize for saying that stupid things happen in financial markets. One of the reasons economist Richard Thaler just got one is that he helped explain why.” Thaler’s research challenged the widely accepted view that the financial markets operate efficiently, incorporating new information “to reflect the underlying asset values.” In the 1980s, the article says, Thaler […]

Four Thaler-Inspired Takeaways Investors Can Learn From

By John P. Reese — It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity… So begins the celebrated classic, A Tale of Two Cities–Charles Dickens’ novel set during the French Revolution–but this opening paragraph could just as easily lead into a stock market chronicle outlining the vagaries of business cycles, stock price volatility and investor behavior. Which may explain why, after last week’s announcement that University of Chicago professor Richard Thaler has been […]

Podcasts of the Week: Pysh, Arnott & Thaler

By Jack Forehand — With so many great investing podcasts out there, it can be difficult to identify the best ones. Through our new Podcasts of the Week segment, I will try to help filter out the most interesting episodes and identify the podcasts I learned the most from each week. In addition, we will also take a look at a great podcast from the past via the From the Archives section. Best Episodes This Week Preston Pysh – Adventures in Finance – 10/6/2017 This episode is technically from last week, but I just got to listen to it and […]

The Investor as a Storyteller

By John P. Reese — The celebrated author Mark Twain said, β€œIt’s not what you don’t know that kills you, it’s what you know for sure that ain’t true.” Twain’s point is well taken, and a keen interpretation of the human condition. As a species, we are extremely accomplished at spinning tales and making meaning, whether based in logic or not, and formulating decisions based on those stories. A precarious tendency when it comes to investing. The award-winning journalist and novelist Will Storr’s book The Unpersuadables: Adventures with the Enemies of Science (2014 Picador/Overlook) delves into the psychology and neuroscience […]