Friday, June 19, 2009

Less (hindsight) is more (profit)

This is the third article in our series on Investor Psychology. It is loosely based on research done by Daniel Kahneman (Ph.D) who published "Aspects on Investor Psychology" in 1998 as well as other interesting finds on the subject.
It is well documented that people can rarely reconstruct what they thought was going to happen just before the event occurred. Most people exaggerate their earlier estimate of the probability that an event may occur. This manifestation is called hindsight biases.

Thursday, June 18, 2009

It's all in the mind - part II


In the previous post I wrote about overconfidence. Another aspect that influences investor behavior, and closely related to overconfidence, is optimism.

How good driver are you compared to others on the road?

The research by Kahneman (Aspects of Investor Psychology by Daniel Kahneman, PhD) and other articles I found on the Internet, suggests an overwhelmingly percentage (80%) of people believe that their driving skills are above average. Although I could not find any statistics on driver abilities (I conclude that it must be very difficult to measure), you have to agree that this is a typical illustration of optimism.