Explores several different types of behavioral bias, which pulls back the curtain on any illusions you
Table of Contents
Preface xiii
CHAPTER 1 Sensory Finance 1
Beating the Bias Blind Spot 1
Illusory Pattern Recognition 4
Superstitious Pigeons—and Investors 6
The Super Bowl Effect: If It Looks Too Good to Be True, It Is 9
Your Financial Horoscope: Forecasting and the Barnum Effect 10
Uncertainty: The Unknown Unknowns 12
Illusion of Control 13
Stocks Aren’t Snakes 15
Herding 16
Availability 19
Assuming the Serial Position 21
Hot Hands 23
Financial Memory Syndrome 25
Attention! 27
The Problem with Linda 29
Representation 31
The Seven Key Takeaways 33
Notes 34
CHAPTER 2 Self-Image and Self-Worth 37
The Introspection Illusion 37
Blind Spot Bias, Revisited 39
Rose-Colored Investing 40
Past and Present Failures 41
Depressed but Wealthy 43
Disposed to Lose Money 44
Loss Aversion 45
Anchored 46
Two Strangers 48
Hindsight’s Not So Wonderful 50
Deferral to Authority 51
Emotion 52
Black Swans 54
Dirty Money, Mental Accounting 55
A Faint Whisper of Emotion 56
Psychologically Numbed 57
Martha Stewart’s Biases 58
Retrospective 60
Annual Returns 60
Nudged 61
Mindfulness 62
The Seven Key Takeaways 65
Notes 66
CHAPTER 3 Situational Finance 69
Disposition vs. Situation 69
Beauty Is in the Eye of the Investor 70
Angels or Demons? 71
Merely Familiar 73
Lemming Time 74
Story Time 76
Wise Crowds? 78
Adaptive Markets 79
George Soros’s Refl exivity 81
Grow Old Quickly 82
Speaking Ill 83
The Power of Persuasion 85
SAD Investors 86
Sell in May . . . 87
The Mystery of the Vanishing Anomalies 89
Tweet and Invest 90
Fire! 92
The Rise of the Machines 93
The Seven Key Takeaways 94
Notes 95
CHAPTER 4 Social Finance 99
Conform—or Die 99
Groupthink 100
Motivated Reasoning 101
Polarized 103
A Personal Mission Statement: Social
Identity and Beyond 104
Gaming the System 106
You’ve Been Framed 108
Behavioral Portfolios 110
Dividend Dilemmas 112
The Language of Lucre 113
Embedded Investing 114
Financial Theory of Mind 116
Trust Me, Reciprocally . . . 118
Akerlof’s Lemons 119
The Peacock’s Tail 122
Facebooked 123
Be Kind to an Old Person 124
The Seven Key Takeaways 126
Notes 127
CHAPTER 5 Professional Bias 131
Mutual Fund Madness 131
Is Passive Persuasive? 133
Losing to the Dark Side 134
Forecasting—The Butterfl y Effect 136
Forecaster Bias 138
Feminine Finance 140
Trading on a High 141
Marriage and Money 142
Muddled Modelers 144
CEO Pay—Because They’re Worth It? 145
Corporate Madness 146
Buyback Brouhaha 148
Oh No, IPO 149
Your 6 Percent Self-Infl icted Trading Tax 150
Expert Opinion? 151
Avoid the Sharpshooters 153
The Seven Key Takeaways 154
Notes 154
CHAPTER 6 Debiasing 159
Numbers, Numbers, Numbers 159
Losing Momentum 160
Mean Reversion 162
Short Shift 163
Diworsification 165
Disconfirm, Disconfi rm 167
Reverse Polarization 168
Expected Value 170
Investing in the Rearview Mirror 172
Living with Uncertainty 174
Sunk by the Titanic Effect 175
Changing Your Mind 177
Love Your Kids, Not Your Stocks 178
Cognitive Repairs 180
Satisficing 181
The Seven Key Takeaways 182
Notes 183
CHAPTER 7 Good Enough Investing 187
#1: The Rule of Seven 187
#2: Homo Sapiens, Tool Maker 188
#3: Meta-Methods 189
#4: Be Skeptical 189
#5: Don’t Trust Yourself 190
#6: Self-Control Is Key 191
#7: Get Feedback 191
A Behavioral Investing Framework 192
Step #1: Making It Personal 193
Step #2: Build an Investing Checklist 195
Step #3: Write It Down 196
Step #4: Diarize Reviews 197
Step #5: Get Feedback 198
Step #6: Do Autopsies 199
Step #7: Update Adaptively 200
The Worst Offenders 201
Tools 203
The Mechanics of Investing 204
The Seven Key Takeaways 206
Notes 207
CHAPTER 8 A Few Myths More 209
Myth 1: Money Makes Us Happy 210
Myth 2: Everyone Can Be a Good Investor 211
Myth 3: Numbers Don’t Matter 212
Myth 4: Financial Education Can Make You a Good Investor 213
Myth 5: I Won’t Panic 214
Myth 6: Debt Doesn’t Matter 215
Myth 7: I Can Get 7 Percent a Year from Markets 216
Myth 8: Infl ation Doesn’t Matter 217
Myth 9: Everyone Has Some Good Investing Ideas, Sometime 217
Myth 10: I Don’t Need to Track My Results 218
The Seven Key Takeaways 219
Notes 219
CHAPTER 9 The Final Roundup 221
Notes 224
About the Companion Website 227
About the Author 229
Index 231
