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Recent members
The Psy-Fi Blog wrote a new blog post titled The Cherry Coke Effect?
Hunger Games If you want a favorable decision from a judge pray that you get a hearing early in the day or straight after lunch. In similar fashion you shouldn’t be making investment decisions on an empty stomach. In the parlance, such arbiters of justice and seekers after profit are suffering from ego depletion; although we might perhaps just say that they’re hungry. Anyway, ego depletion seems to have a real effect on our ability to make important decisions: we’re more likely to be decoyed, to procrastinate and to compromise over our decisions when we’re low in energy. So...
11 days ago
The Psy-Fi Blog wrote a new blog post titled Thatcherism: The Irony of Economics
Nuance-onomics We’ve previously looked at some of the evidence that suggests Studying Economics Makes You Mean. The general idea is that learning about the market economy and the benefits of natural selection tends to make us less generous and less empathetic towards the travails of others. However, like so much research quoted here this only offers up part of the story. It’s possible that we’re looking at a false correlation – it may be that it’s not studying economics that makes you a nasty grasping son-of-a-bitch but that you study economics because you already are one. And, as...
35 days ago
The Psy-Fi Blog wrote a new blog post titled Where Two Strangers Never Meet: Self-Serving Bias
"If you can meet with Triumph and Disaster, and treat those two strangers just the same" IF ... Rudyard Kipling Problematic Pronouns We all probably know someone who believes that their successes are entirely down to their own levels of skill and whose failures are someone else’s fault. To some extent most of us will meet them in the mirror each morning. This is self-serving bias in action. As Donelson Forsyth explains it: “Those told they failed attribute performance to such external factors as bad luck, task difficulty, or the interference of others, and those told they...
56 days ago
The Psy-Fi Blog wrote a new blog post titled Free Zeitgeist
As the Eurozone undergoes another trial by stupidity and markets edge ever higher in the face of uncertainty and confusion, my publisher has kindly put The Zeitgeist Investor on free offer for the weekend. If any Kindle owners out there haven't already picked up a copy now is the time to do so. Because, of course, there's nothing new in the markets, it's just that we don't live long enough to remember. Read More >> The Zeitgeist Investor
61 days ago
The Psy-Fi Blog wrote a new blog post titled Curiouser and Curiouser: Incentives Through the Looking Glass
Demotivated by Design The world is full of schemes aiming to incentivize us; we’re spurred on to achieve new targets and scale new heights by the carrot of lucre-based incentivization schemes designed to appeal to our selfish natures. Which is not surprising because we live in a society characterised by a belief that we’re all out for what we can get, wheeling and dealing in our own self-interest, forever trying to get the maximum reward for the minimum effort. Which is like determining that 5 is the square root of 17. Anyone who truly believes that money is the main motivation...
72 days ago
The Psy-Fi Blog wrote a new blog post titled Sapir-Whorf Economics: Your Language Predicts Your Future
A Resumption Apologies for the recent temporary hiatus, been rather busy with that strange thing called real life. More regular updates from now on but, for a while, they'll be more limited than in the past due to the need to fulfil a book contract. Still, it’ll be something to add to the Christmas wishlist. So … let’s look at something really odd, and why, if you’re a useless procrastinator you should really want to learn German. It seems that cultural stereotyping may not be quite so irrational as we may have thought … Speak and Make Money Keith Chen has recently...
84 days ago
The Psy-Fi Blog wrote a new blog post titled Stories, Control, Fundamentals and Panic
Nerve, Lost There’s an ongoing, long term argument about the nature of financial crises. Many believe that they’re caused by the underlying fundamentals of the economy, imbalances of various kinds, leading to failure. Others argue that the only fundamental is the inevitable hopelessness of human nature in the face of uncertainty: panic. Of course, panic itself is a bit of a vague term, although it clearly refers to some kind of failure of collective nerve in the market. For a panic based model of financial crises to have any validity we’d need to link it to some of the more...
120 days ago
The Psy-Fi Blog wrote a new blog post titled Slavery, An Epicurean Business Model
Early Economics The world is composed of atoms, which can combine and re-combine to form everything and anything, including the gods, but can never be destroyed. There is no afterlife and creation is simply trial and error carried out over infinitely long times. The only purpose to life is to seek pleasure and avoid pain. These ideas should all sound familiar to people acquainted with the mores of modern society, all part of a belief system based on the scientific method, even leading to a conception of the pleasure-pain principle that sounds suspiciously like the basis of...
134 days ago
The Psy-Fi Blog wrote a new blog post titled Experience, Rare Events and Risky Choice
Choice, Education and Experience Decision making, the challenge of choice, is often discussed as though it’s a single, invariant type of event. Perhaps this is most strongly presented in the idea of stable preferences, the idea that if we choose to eat the fish at a restaurant one day then we should choose it the next day as well, always assuming we liked it. People don’t actually behave like this, and decision making is much more complex than economics often makes out. However, we can roughly divide our choice processes into two – decisions we make from personal experience and...
155 days ago
The Psy-Fi Blog wrote a new blog post titled Invert, Always Invert
I Wouldn't Start From Here“All I want to know is where I’m going to die, so I’ll never go there” - Charlie MungerCarl Gustav Jacob Jacobi was a nineteenth century mathematician famous for his work on elliptic functions, amongst other accomplishments. Oddly he ends up being frequently quoted by Charlie Munger and Warren Buffett, despite having no known connection with the investment world. Jacobi great contribution to investor thinking was his maxim “man muss immer umkehren”: invert, always invert. Of course, Jacobi was actually making a statement about mathematics, not investment...
162 days ago
The Psy-Fi Blog wrote a new blog post titled A Liberal Arts Investor’s Reading List
A Little Wisdom Goes A Long Way Christmas is coming, so it’s time for all right-thinking blogs to publish a random list of books in the hope of generating enough income to throw another log on the fire (or at least buy some more books). These days it’s hard to actually see out of the thicket of new books on the topic behavioral finance, a deluge inversely proportional to the actual impact of behavioral economics on the real world, other than through the dubious delights of default choice. If we think a bit wider, though, as a liberal arts investor, there are a few books people shouldn't...
169 days ago
The Psy-Fi Blog wrote a new blog post titled Predicting the Information Markets
Circular Markets As we saw in Weird Markets it can be remarkably difficult to pin down the idea of a “market”. Markets are what economists study, economists study markets; a perfectly circular relationship. On the other hand, markets do seem to be a fine way of deciding how to allocate scarce resources: economics is built on this singular, empirical observation. Given this it’s not a huge jump to recognizing that markets may be a better way of making predictions about all sorts of things than relying on the kind of dubious expert forecasting we've met numerous times as in...
176 days ago
The Psy-Fi Blog wrote a new blog post titled Bayesian Unreason in the Modern World
Unintuatively Rational Most economic theories make an assumption that humans are rational, but this definition is a peculiarly drawn one as it assumes that we all operate on the basis of Bayes’ Theorem, an idea which is freely bandied about but which very few people can actually describe. There’s a good reason for this – it’s profoundly unintuitive, which makes you wonder if we do think the way the theorem suggests we ought to. Unintuitive or not every investor should have a working appreciation of the ideas behind Bayesian reasoning, because it’s another one of those mental models we...
182 days ago
The Psy-Fi Blog wrote a new blog post titled The Emergent Rationality of Markets
Frogs and Philosophers In Games People Play we alighted upon the germ of an idea that bears further investigation – that although individual investors may themselves be as mad as a box of frogs on mescaline their combined behavior can somehow result in relatively rational markets. The idea is that, somehow, rational markets arise out of irrational traders doing stupid things. Odd though this may seem as an idea the possibility of new properties emerging from systems made up of complex component parts isn’t new, although it does serve to make a lot of scientists and philosophers...
190 days ago
The Psy-Fi Blog wrote a new blog post titled Games People Play
Nobel Games Game Theory is a theory of human decision making, and one that’s very popular in the dismal science: no less than thirteen of the forty four Nobel Prizes in economics have been awarded to practitioners in the area. And, indeed, Game Theory is a powerful tool for researchers in many fields, the only problem being that if you give a man a powerful tool they’re likely to want to wave it around and use it on everything, regardless of taste and applicability. Thus we find that Game Theory and behavioral economics collide in odd ways, which turns out not to surprising as the...
197 days ago
The Psy-Fi Blog wrote a new blog post titled On the Invariant Nature of Investor Ineptitude
Behavior is Forever, Not Just For Life One of our themes here is the unchanging nature of human behavior across time and space. It doesn’t much matter whether we’re in 1st century Rome, 17th century Holland, 18th century Britain or 21st century America, if you put large groups of people in the same situation they’ll tend to behave the same way when they have money at stake: irrationally. There’s plenty of evidence from history that this thesis is true, but a recent paper on the seventeenth century’s equivalent of a behavioral finance blogger helps to emphasise the point. We were...
203 days ago
The Psy-Fi Blog wrote a new blog post titled Seasonally Affective Investing Disorder
Not Not Die Out Behavioral bias occurs in all sorts of odd ways, but basically can be traced back through evolutionary history to when humanity’s survival depended on deep co-operation and the invention of sewing. Our ability to cope with the huge changes in weather conditions experienced over our short history defines our species: we didn’t go extinct. It shouldn’t therefore be particularly surprising that we’re unconsciously affected by environmental conditions: there was a time, not so long ago, when nothing else mattered. Now, cosseted by central heating and air conditioning,...
212 days ago
The Psy-Fi Blog wrote a new blog post titled A Bias For Real-Estate
Mindblowing Mentality The evidence for stockmarket investor bias is overwhelming. We are so not rational when it comes to our stocks that the thought that there are still researchers out there trying to develop theories based on the idea that we actually think through what we do is somewhat mindblowing. However, you’d expect that if we’re strangely biased when it comes to financial transactions involving the stockmarket that we might also be a bit slanty-brained when it comes to other asset classes as well. And as real-estate is probably the biggest single investment any of us...
219 days ago
The Psy-Fi Blog wrote a new blog post titled Regulatory Omniscience is A Fictional Conceit
Who Guards The Guards? If you’re a regulator you’re likely to be conditioned by motivated reasoning: you should want more stringent regulation because, after all, that’s what you get paid to do. You’ll base the need for more rules on reasoned analysis, but your analysis will be directed by your incentives. Regulators are human; ergo, they’re subject to behavioural bias. Quis custodiet ipsos custodes? One Step Behind “Who guards the guards” is a phrase derived from the Roman satirist Juneval who regarded all women as inevitably inclined to adultery and all men as inevitably designed to...
226 days ago
The Psy-Fi Blog wrote a new blog post titled Keynesian Investing: Changing Facts, Changing Minds
Changing His Mind David Chambers and Elroy Dimson have published a wonderful paper on Keynes the Stock Market Investor, which analyses John Maynard Keynes’ remarkable investment record as the effective Chief Investment Officer of Kings College Cambridge over a period of a quarter of a century. It’s a fascinating insight into the evolution of one individual from underperforming, overconfident, macro-based and behaviorally biased to an outperforming, realistic, stockpicking rationalist. That this journey happens to have been made by one the last century’s most famous economists,...
233 days ago
