tungwaiyip.info

home

about me

links

Blog

< May 2010 >
SuMoTuWeThFrSa
       1
2 3 4 5 6 7 8
9101112131415
16171819202122
23242526272829
3031     

past articles »

Click for San Francisco, California Forecast

San Francisco, USA

 

Why Smart People Make Big Money Mistakes

I have just finished a fascinating book, Why Smart People Make Big Money Mistakes by Gary Belsky and Thomas Gilovich. Traditional economics considers people as rational being, acting to optimize one's own welfare. In practice, few people really acting rationally all the time. Even well informed people have found to make many faulted financial decisions. Behavioral economics incorporates psychology and cognitive factor into consideration. It have found great insight into people decision making process.

Below are simply my notes taken from the book.

Ch.1 Mental Accounting, Richard Thaler. Statistical Regression, Sir Francis Galton, 1911 (tendency to fall back into statistical mean).

Ch.2 Prospect Theory, Daniel Kahneman, Amos Tversky, 1979. (Issue framing, e.g. loss aversion, sunk cost fallacy).

Ch.3 The Devil That You Know

Decision Paralysis - tendencies to avoid or delay action, particularly due to the fear of regret and a preference for the familiar.

  • Maximizer/Satisfier - Herbert Simon, 1950s.
  • Trade off contrast - choices are enhanced or hindered by the tradeoff between options, even for options we wouldn't choose anyway, Tversky, Simonson.
  • Extremeness aversion - people are more likely to choose an option if it is an intermediate choice within a group, Tversky, Simonson. (so it can be manipulated by introducing extreme choice).
  • Status quo basis, endowment effect - preference for holding on what you have.
  • Regret aversion - avoid the pain of regret and the responsibility for negative outcomes.

Counter Measures

  • Take opportunity cost into account
  • Mark Twain's saying, "Twenty Years from now you will be more disappointed by the things you didn't do than by the ones you did do."

Ch.4 Number Numbness

  • Neglecting the base rate - tendency to disregard or discount overall odds, Kahneman, Tversky.

Ch.5 Dropping Anchor

  • Anchoring - clinging to a fact or figure or idea that may or may not have any real relevance to your judgment or decision.
  • Confirmation bias/Preferential bias - once people developed bias, they tend to view new information in such a way that it supports those preferences (Edward Russo).

Ch.6 The Ego Trap

The tendency to attribute success to your ability but to attribute failure to other causes.

  • Heads I win, tails it's chance, Eileen Langer, 1975
  • "Expert" predicition, Tetlock
  • "Hindsight bias", Baruch Fischhoff

2010.05.27 [, ] - comments

 

 

blog comments powered by Disqus

past articles »

 

BBC News

 

Prague gunman killed himself on roof as police approached (22 Dec 2023)

 

Bodycam footage shows police hunting Prague gunman (22 Dec 2023)

 

Alex Batty: Police launch abduction investigation into disappearance of British teen (22 Dec 2023)

 

Banksy stop sign drones art removed in London (22 Dec 2023)

 

Martin Kemp refunds disabled ticket after fans' difficulty with seller (22 Dec 2023)

 

Queues at Dover as Christmas getaway begins for millions (22 Dec 2023)

 

New £38,700 visa rule will be introduced in early 2025, says Rishi Sunak (22 Dec 2023)

 

UK at risk of recession after economy shrinks (22 Dec 2023)

 

Mohamed Al Bared: Student jailed for life for building IS drone (22 Dec 2023)

 

Andrew Tate denied request to visit ill mother in UK (22 Dec 2023)

more »

 

SF Gate

more »


Site feed Updated: 2023-Dec-22 09:00