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By Rodd Wagner
Forbes
June 2, 2017
 

The Doughnut Dilemma: What The Office Pastry Teaches About Behavioral Economics

If you want to understand human nature at work, start with a doughnut

Today being National Doughnut Day it’s not tough to find a free one from Dunkin' Donuts, Krispy Kreme, Tim Hortons or many other bakers.

Place it on your desk. Then read the following warning.

Eating doughnuts or any other foods high in fat and sugar increases your risk of heart disease, obesity, diabetes, and other serious health issues.

Should you eat it? More...

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By Giovanna Mazzeo Ortolani
B Bias Blog
May 2, 2017

Through the psychology of poverty

What explains the differences in economic decisions amongst poor and rich individuals?


In 2014 Johannes Haushofer and Ernst Fehr, professors at Princeton and Zurich University, respectively, have written the article “On the Psychology of Poverty” for the Science magazine (original version here). They show evidence that poverty causes psychological consequences such as negative affectivity and stress with unexpected changes in economic behavior by changing individuals’ revealed preferences and leading to short-sighted and risk-averse decision making. But what are the channels through which poverty could arise and perpetuate itself? More...

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March 29, 2016
University College London

Uncertainty can cause more stress than inevitable pain

Knowing that there is a small chance of getting a painful electric shock can lead to significantly more stress than knowing that you will definitely be shocked

The study, published in Nature Communications, found that situations in which subjects had a 50% chance of receiving a shock were the most stressful while 0% and 100% chances were the least stressful. People whose stress levels tracked uncertainty more closely were better at guessing whether or not they would receive a shock, suggesting that stress may inform judgments of risk. More...

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By Tadas Viskanta
Abnormal Returns
December 19, 2017

Disappointed and pessimistic: planning for life’s happiness trough

Getting old sucks.
That is, up until a point.

There is a lot of research that backs up this idea of happiness declining for the better part of four decades until we are solidly in our fifties. There are a number of reasons why our happiness, on average, traces out this U-shape. Financial Samurai proposes three reasons:

  1. Hedonic adaption;
  2. Responsibility for two generations; and
  3. Declining health.

There is some evidence from primates that this dip in life satisfaction may be inherent, i.e. not a human construct. More...

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By Eyal Winter, PhD
Psychology Today
December 21, 2017

 

Regrets in Finance and Romance

How does the fear of regret affect our dating behavior?

One of the most well-known biases in financial behavior is called the “disposition effect.” It refers to situations in which investors hold on tight to a losing asset. When we enter into a new investment, whether it be a mutual fund, a specific stock, or even Bitcoin, we will be very reluctant to sell the asset at a loss. We will almost always prefer to hang on to it until it picks up again, almost regardless of the prospects that it will eventually move into profit territory.

A related behavioral bias is the “sunk cost bias.” More...

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By Patrick Samson
Behavioral Economics
4/12/17

HOW PREDICTABLY IRRATIONAL ARE CUSTOMERS?

Some people cringe at the term homo economicus; to others, he has become an old familiar (and quaint) friend. No doubt, the term has taken hold and remains ubiquitous. Even though the homo economicus concept is well accepted in many economic circles as a fait accompli, the term has not always brought positive reactions. The one-sided image of man has been criticized for a long time – mainly because the late 19th century theory portrays humans as consistently rational and self-interested, pursuing their ends for monetary gains. More...

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By H. Kent Baker and Victor Ricciardi
The European Financial Review
Feb 28, 2014

How Biases Affect Investor Behaviour

Why do investors behave as they do? Investor behaviour often deviates from logic and reason. Emotional processes, mental mistakes, and individual personality traits complicate investment decisions. Thus, investing is more than just analysing numbers and making decisions to buy and sell various assets and securities. A large part of investing involves individual behaviour. Ignoring or failing to grasp this concept can have a detrimental influence on portfolio performance. More...

By Tamar Satov
CPACanada.ca
January 1, 2018

Battling investment bias

For two days last October, hundreds of people waited in line at Dundas Square in downtown Toronto, snaking toward a pastel-pink pop-up booth. Those with enough patience to queue for an hour or more were rewarded with ... a doughnut. Not just any doughnut, mind you, but a gourmet variety from a local doughnut “boutique,” beautifully packaged in a rose-coloured house-shaped box.

More importantly, the doughnut was free. More...

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By Herman Brodie
TCAM blog

Are Seasoned Investors Better?

At least one asset is guaranteed to enrich your portfolio this year: your investing experience. Stick at it long enough and you will encounter practically everything from start-ups to meltdowns, flashes in the pan to flash crashes, slim pickings to fat fingers. You will also discover the financial impact of earthquakes and tsunamis, of both the political and geological varieties. The wisdom of the years, one might argue, ought to make you a better investor.

Empirical evidence, reassuringly, supports this hypothesis, with one important caveat...More...

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By Elizabeth Olson
The New York Times
Nov. 11, 2017

I Won the Lottery and I Need Help. No, Really!

Winning the lottery can be a bolt of amazing luck. But whether the luck lasts depends on whether lottery winners fritter away their unexpected largess or manage to achieve financial security.

When Alcario and Carmen Castellano won $141 million in California more than a decade ago, they were fortunate enough to have a financial professional in the family to advise them. More..