The Undoing Project by Michael Lewis tells the story of the deep friendship and intellectual collaboration between the two Israeli psychologists who invented “behavioural economics”, Daniel Kahneman and Amos Tversky.
The result of Kahneman and Tversky’s “bromance” was not only behavioural economics but the establishment of the cognitive rules for human irrationality that has arguably done as much to define our world.
Timing is important when it comes to making sound financial decisions as is emotional intelligence.
Emotional intelligence is the ability to recognise your emotions, and understanding their effect on your decisions can lead to better decision making.
It can also be argued that investors who fail to recognise and manage their emotions effectively, are in danger of making poor judgements in the first place, or of overreacting later when things don’t go as initially anticipated.
I recently had the good fortune to be invited by Platinum Funds Management to attend a presentation by former Australian Rugby Union player, Ben Darwin.
Since his career ending neck injury, Ben has established a sports analytics company and his anecdotes had interesting correlations with investing.
Behavioural economics or behavioural investing is a relatively new science. There are plenty of cognitive biases people have which don’t always lead to the most optimal or rational decision.
The most recent recipient of the Nobel Prize for economics was Richard Thaler for his work in pioneering behavioural economics.
His research showed people do not always make rational decisions. This contradicts economic theory which relies on people making rational decisions.
His studies showed people often make decisions that don’t serve their best interests and do so consistently. He brought economics and the psychological analysis of decision making together.
We all know saving money for the future is a good idea but saving is just the first step towards future financial planning. Investing to grow your savings or indeed to create savings for the future is the ideal method to achieve future financial prosperity. Here are our top six reasons to invest:
Friday 20th October 2017, was the 30-year anniversary of the 1987 share market crash when the Australian share market fell 25% in a single day.Continue reading
“Most people get interested in stocks when everyone else is. The time to get interested is when no one else is. You can’t buy what is popular and do well.”
Warren BuffettContinue reading
By 2055 the number of Australians over 65 is expected to double.
Coupled with longer life expectancy, this raises important issues for the community and economy, including the provision of financial services for older Australians.
Over my 25 years of providing investment advice I’ve found it fascinating observing the psychology of investors. Why do people invest their savings in the first place and why do people make particular investment decisions?Continue reading