By Mickäel Mangot
Great booklet! Mickäel has performed an outstanding task of explaining the insights from over 50 groundbreaking mental experiments. you'll keep away from some of the mental errors made by way of so much traders. He teaches you to monitor out for overconfidence and the momentum bias to prevent huge losses. He allows you to know the way your social relationships can swap your asset allocation threat profile. Forearmed is forewarned. in the event you practice Mickäel's insights, you are going to increase your funding performance.
Executive Director, UBS AG
Why are traders occasionally their very own worst enemies? As this eminently readable booklet exhibits, all kinds of biases impact traders' judgments, starting from sheer lack of knowledge and feelings to overconfidence or aversions, from chosen momentary reminiscence to undue generalizations. construction at the increasing literature in behavioral economics, the experiments suggested the following shed an invaluable, usually humorous, light...
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Additional resources for 50 Psychological Experiments for Investors
The results appear very sensitive to the time periods considered and the management styles observed. 9. Why do young savers become rich seniors? The underestimation of compound interest In the same way that little streams form mighty rivers, fortunes flow with time from the growth of well-chosen investments. Because interest itself yields interest, if interest is reinvested, the difference in return between two investments brings about a difference in income that becomes greater and greater as time passes.
Local bias 15. Why do you own stocks in the company where you work? Employer bias 16. Why does the industrial waste collection sector not attract investors? Emotional reasoning 11. Why do you refuse to put foreign stocks in your portfolio? Forgetting correlations It is well-known that investors experience difficulty measuring the risk that holding an asset represents for their portfolio. In fact, investors take into account the intrinsic risks of assets rather than appreciating the change that they engender for the total risk of the portfolio.
Why do young savers become rich seniors? The underestimation of compound interest 10. Why does inflation encourage selling the house and renting instead? The money illusion 7. Why do you play black at roulette when red has just come up four times in a row? The gambler’s fallacy Heads, tails, heads, heads, heads, heads… Which side of the coin will come up on the next toss? ” These people are prone to the gambler’s fallacy which, like many errors in reasoning, rests on a misunderstanding of probability theory.
50 Psychological Experiments for Investors by Mickäel Mangot