Behavioral Finance: What Good Is It, Anyway? by Jason Zweig
Here’s another speech from my archives, in which I suggested that many people who try to apply psychological findings to the financial markets do it backwards: instead of studying their own biases and failings, they focus on those of other people.
The earlier conference I referred to was in the spring of 1996, when I first heard and met Daniel Kahneman. Behavioral finance in general, and Danny and his work in particular, have inspired many of my articles since. In 2007 and 2008, I had the honor of assisting Danny with his great book Thinking, Fast and Slow.
In the intervening years since this speech, I’ve misplaced the slides; I’ll try to recreate them one of these days. In the meantime, investors should always remember, as I said here, that “behavioral finance is not the study of how ‘other’ people behave. It is the study of how we all behave. It is not just a window onto the world; it is also a mirror onto ourselves.”
The ExodusPoint Partners International Fund returned 0.36% for May, bringing its year-to-date return to 3.31% in a year that's been particularly challenging for most hedge funds, pushing many into the red. Macroeconomic factors continued to weigh on the market, resulting in significant intra-month volatility for May, although risk assets generally ended the month flat. Macro Read More
Behavioral Finance: What Good Is It, Anyway?
The John F. Kennedy School of Government Program on Investment Decisions and Behavioral Finance
October 25, 1999
I would be guilty of overconfidence if I thought even for a moment that I could fully convey what a great privilege it is to be speaking here this evening. It was at this very event, three and a half years ago, that behavioral finance first struck me like a baseball bat right on the bridge of my nose.
Once I recovered from the staggering force of that blow, I’ve never been the same since, either as a professional or as a person. For completely transforming how I do my job, and for making me drive my wife absolutely crazy with my newly optimal decision-making, I have this program to thank.
I hope that in this year’s sessions you’ll learn almost as much as I have in the past–but not quite as much, so you can do your day jobs better than before and yet somehow return each evening to a less stormy home life than I’ve created for myself.
But I’m not sure you can. You will do a great disservice to yourselves, to your clients, and to your businesses, if you view behavioral finance mainly as a window onto the world. In truth, it is also a mirror that you must hold up to yourselves. More worrisome, it is a mirror that magnifies and clarifies and highlights your own warts and imperfections.
After all, it takes no great bravery to look out a window onto the world below and watch the foolish masses aimlessly stumbling nowhere near where they really want to go–while you can see quite clearly, from your lofty vantage point, the simplest and safest path to follow.
See full article here.
Thinking, Fast and Slow by Daniel Kahneman