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Dear Investor, That Cocky Voice in Your Head Is Wrong

>Image Credit: Hanna Barczyk

As much as all of us investors wish we were perfectly logical calculating machines, we are human: emotional, distractible, impatient, inconsistent. Behavioral economics is the study of how real human beings—not the walking, talking spreadsheets that traditional economists pretend we are—make financial decisions. Unfortunately, it’s all too easy to persuade yourself that the findings of behavioral economics apply to everyone else but you. After more than 20 years of studying research in that field, here’s how I think most investors interpret it. How many of these sound like you? I know many of them sound like me.

Behavioral economics teaches that people are overconfident: They believe they know more than they do, or they assume their knowledge is more precise than it is.

I’m 100% certain that’s true for everybody else, but there’s no way that applies to me.

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This article was originally published on The Wall Street Journal.

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Note: In my own head, I titled this column “The Behavioral Economics of Being Me.” I first started playing with these notions in a set of tweets I posted a few years ago, which you can find here:

Further reading

Benjamin Graham, The Intelligent Investor

Jason Zweig, The Devil’s Financial Dictionary

Jason Zweig, Your Money and Your Brain

Jason Zweig, The Little Book of Safe Money

http://www.behaviouralfinance.net/

http://www.psyfitec.com/

https://www.behavioraleconomics.com/now-available-the-behavioral-economics-guide-2018/

http://jasonzweig.com/behavioral-finance-what-good-is-it-anyway/

http://jasonzweig.com/how-to-ignore-the-yes-man-in-your-head/

http://jasonzweig.com/to-be-a-new-fool-in-the-world/

http://jasonzweig.com/when-the-stock-market-plunges-will-you-be-brave-or-will-you-cave/

http://jasonzweig.com/from-the-archives-daniel-kahneman/

http://jasonzweig.com/a-long-chat-with-peter-l-bernstein/