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50 Psychological Experiments for Investors by Mickäel Mangot

By Mickäel Mangot

Great ebook! Mickäel has performed a superb task of explaining the insights from over 50 groundbreaking mental experiments. you'll the way to keep away from the various mental error made through such a lot traders. He teaches you to monitor out for overconfidence and the momentum bias to prevent huge losses. He permits you to know how your social relationships can swap your asset allocation chance profile. Forearmed is forewarned. when you observe Mickäel's insights, you'll increase your funding performance.

Paul Stefansson
Executive Director, UBS AG

Why are traders occasionally their very own worst enemies? As this eminently readable booklet exhibits, every type of biases have an effect on traders' judgments, starting from sheer lack of knowledge and feelings to overconfidence or aversions, from chosen non permanent reminiscence to undue generalizations. construction at the increasing literature in behavioral economics, the experiments said the following shed an invaluable, usually humorous, light...

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Sample text

Thinking in real prices, that is, in terms of purchasing power, is much more difficult than just using the nominal (face-value) prices. It is, however, necessary to do so in times of inflation in order not to fall prey to the money illusion and to make good economic decisions. It is even more essential in periods of strong inflation and in situations involving the selling of property which has been held for a long time, such as a house. In order to better understand the perception which people have of real and nominal prices, Shafir, Diamond, and Tversky (1997)5 gave questionnaires to different groups approached on campuses, in an airport, and in shopping malls.

2. Why do you buy stocks when the market has gone up and bonds when the market has gone down? 3. Why are you sure that everyone agrees with your view that the market is going to go up? 4. Why does Google’s success make you want to invest in high-tech? 5. Why has your stock portfolio only gained 5 percent this year when you are sure it has earned twice as much? 6. Why is it that on moving to the boonies you rent an overly expensive apartment? CHAPTER 2: Hopeless at Math! 7. Why do you play black at roulette when red has just come up four times in a row?

Why do you buy stocks when the market has gone up and bonds when the market has gone down? Momentum management If momentum bias affects the expectations of investors, it also changes their management practices by encouraging investment based on the performance of investments in the short-term. The better the recent performance of investments considered risky, such as stocks, the more they attract investors. Similarly, when it comes to choices among different stocks, those which have gone up the most are most often put into portfolios.

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