In Episode 10 of the Financial Time Traveler’s Podcast (watch here), Anton and Nyle introduced a two-part series about WHY and HOW smart people make terrible investment decisions.
Part one focused on the “cognitive bias,” or how we trick our minds to make bad calls. In Episode 11 Anton and Nyle go for round two and focus on the “emotional bias,” or how the way we feel affects the way we act.
It is the same reason Nintendo experienced a significant pop in market price after the release of Pokémon Go, even though Nintendo had little to do with the app itself.
It is the same reason a mutual fund with the ticker symbol of “CUBA,” which had zero holdings in the country of Cuba, traded at a 50% increase following President Obama’s 2014 announcement to normalize trade with the country.
— Charlie Bilello, CMT (@MktOutperform) December 20, 2014
It is the same reason why you chose what you are wearing to work, what you are eating for lunch, the car that you drive, and what music you like (or don’t like).
It is the same reason why economists are saying that investors “misbehave” or act irrationally when we should, in theory, invest for the highest possible gains with the lowest amount of risk.
There are many micro-interactions that we encounter on a daily basis which sliver their way into the structure of our outlook. When our outlook is changed, we then change our thoughts. When our thoughts are changed, we then change our actions. When we change our actions, we then change our habits. When we change our habits, we then change our character. When we change our character (or nature or who we are, etc.), we then change our legacy.
The answer to conquering the influence of any bias is self-awareness. However, the topic of emotional bias, cognitive bias, and behavioral economics is so thick that a two-part series in a video/podcast format was the least we could do. Of course, in between the facts, Anton and Nyle interact the only way that a father-son team can.
“Top notch insight sprinkled with jokes, stories, and time travel.” -Someone in Nyle’s (very cool) Imagination.