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By Lou Carlozo
US News & World Report
July 22, 2016

The Irrational Investor and Behavioral Finance

Investors do crazy things for odd reasons, but experts are getting a grip on investment's human side.

Just as anyone knows who's come home to the sight of a dusty moose head purchased on eBay – and the excited spouse bragging about snagging the Moose Noggin Deal of the Decade – otherwise sane people have the craziest reasons for doing what they do with their money.

And the finance-strange behavior connection certainly doesn't stop with consumers. More…

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By Richard Lehman
Proactive Advisor Magazine
July 11, 2018

Investing is about managing stress—as well as performance

While there is no way to eliminate all market risk, an actively managed portfolio with an emphasis on risk management may produce less stress than a passive portfolio for both advisors and their clients.

In my 35-year career in and around Wall Street, I have seen the markets exact a personal toll on many investors, both retail and professional. Driven by subliminal inner forces, many people have allowed the markets to push them to extremes and, unfortunately, have done harm not only to their portfolios but also to their health and well-being as a consequence. More…

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By Žiga Vižintin
Behavioral Scientist
Feb 6, 2018

Why Five and Not Eight? How Round Number Bias Can Reduce Your Nest Egg

Imagine a recent college grad on his first day of work. One of the many choices he’ll have to make is how much of his salary to contribute to his retirement account. He might think to himself, “Five percent seems like a good number; not too much and not too little.” Sound familiar?

Now let’s fast forward 40 years. More…

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By David Gal
University of Illinois
June 5, 2018

What Does Loss Aversion Mean for Investors? Not Much

Daniel Kahneman, a winner of the 2002 Nobel Prize in Economics, wrote that “The concept of loss aversion is certainly the most significant contribution of psychology to behavioral economics.” When Richard Thaler, the father of behavioral economics, won the Nobel Prize in Economics in 2017, the phrase “loss aversion” appeared 24 times in the Nobel Prize committee’s description of his contributions to science.

Why have people attributed such profound importance to loss aversion? More…

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By Giovanni Luca Ciampaglia and Filippo Menczer
The Conversation
Last updated January 10, 2019

Misinformation and biases infect social media, both intentionally and accidentally

Social media are among the primary sources of news in the U.S. and across the world. Yet users are exposed to content of questionable accuracy, including conspiracy theories, clickbait, hyperpartisan content, pseudo science and even fabricated “fake news” reports.

It’s not surprising that there’s so much disinformation published: Spam and online fraud are lucrative for criminals, and government and political propaganda yield both partisan and financial benefits. But the fact that low-credibility content spreads so quickly and easily suggests that people and the algorithms behind social media platforms are vulnerable to manipulation. More…

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By Anna Sulkin
WealthManagement.com
May 10, 2018

Is There a Gender Gap in Saving for Retirement?

A recent Merrill Lynch study finds women have to work harder than men.

To end up on somewhat equal footing with men and to achieve financial wellness, women need to start planning and saving for retirement earlier and work longer to maximize Social Security and pension benefits.

A new study conducted by Merrill Lynch in partnership with Age Wave reveals the unique financial challenges that women continue to face, despite much progress made. More…

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By Jacek Debiec
The Conversation
May 11, 2018

Americans are more anxious than before

Americans are becoming more anxious about their safety, health, finances, politics and relationships, a new online poll from the American Psychiatric Association finds. Compared to the results of a similar poll a year earlier, 39 percent of adults in the U.S. are more anxious today than they were a year ago.

As a psychiatrist and neuroscientist, I believe studies and polls like these help to identify individual and group vulnerabilities. They may provide clues for providing better clinical practice, implementing more effective public policies, and designing research projects that yield a better understanding of the causes of anxiety and better treatments. More…

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By Emma Young
The British Psychological Society
May 2, 2018

A radical new theory proposes that facial expressions are not emotional displays, but “tools for social influence”

You’re at a ten-pin bowling alley with some friends, you bowl your first ball – and it’s a strike. Do you instantly grin with delight? Not according to a study of bowlers, who smiled not at a moment of triumph but rather when they pivoted in their lanes, to look at their fellow bowlers.

That study provided the earliest evidence for a controversial hypothesis, the Behavioural Ecology View (BECV) of facial displays, outlined in detail in a new opinion piece in Trends in Cognitive Sciences. Carlos Crivelli at De Montfort University, Leicester, UK and Alan Fridlund at the University of California, Santa Barbara, put forward the case that facial displays are not universal, “pre-wired” expressions of emotion – a concept supported by 80 per cent of emotion researchers in a recent poll – but are flexible tools for influencing the behaviour of other people. More…

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By Christopher Krupenye
The Conversation
Feb 12, 2015

Apes Make Irrational Economic Decisions – That Includes You

Just the other day I found myself in the waiting room of an automotive dealership. While my car was being serviced, I flipped through a product brochure. One ad for an oil change boasted that it would clean out at least 90% of used oil. Another for new brakes guaranteed maximum performance for twelve months. No one was advertising oil changes that leave behind 10% sludge, or brakes that begin to fail after only a year.

That’s because advertisers know that people are sensitive to how options are framed. We appraise goods more highly when their positive attributes are emphasized over their negative attributes, even if the details describe essentially the same situation (e.g., 90% clean versus 10% dirty).

This is called attribute framing, and it’s just one example of many irrational biases that humans exhibit when making economic decisions. More…