Money and Finance
- Barry Schwartz Interview
Found via Simoleon Sense. The European: The classical economic point of view is that peoples’ decisions results from a careful weighing of what will create the most desirable result. What do you advocate? Schwartz: Well, I think this picture is completely...
- Bronte Capital: Risk Management And Sounding Crazy
The mad genius is iconic in finance too. I have heard people say - even now - that Carson was sloppy and breathless in his allegations. He was not. He was right. Dismissing him as sloppy and breathless is in itself sloppy and breathless. Indeed siding...
- Wired Interview With Barry Schwartz
LONG BEACH, California -- Psychologist Barry Schwartz delivers the final presentation of TED 2009 on Saturday. Wired.com spoke to Schwartz about practical wisdom, moral skill without moral will, and the roles of hope and virtue. Wired: You call practical...
- The Perils Of The “mindless Imitation Of One’s Peers”
Mr. Buffett made some comments when speaking to a group from Notre Dame in 1991 that are relevant to what's going on today:-The last thing I want to show you, before we get onto your questions, is an ad that was run June 16, 1969, for 1,000,000 shares...
- Cfa Conference Webcasts - Mauboussin And Zweig
The Prime Directive, Sharks, and the Wisdom and Whims of the Collective -In this webcast, Michael J. Mauboussin discusses the following: - -The metrics of market efficiency: mean–variance efficiency and arbitrage opportunities. -Necessary conditions...
Money and Finance
Beyond reason: The strange existence of market anomalies
Nevertheless, it is still a puzzle why such a glaring anomaly has not been arbitraged away. Academics have just about abandoned the idea that all investors are rational; there are too many examples of psychological quirks (such as an aversion to recognising losses) for that to be the case. Nor can a bunch of “super-smart” investors necessarily keep prices in line; they may face constraints on their ability to trade or simply run out of money before the anomalies can be corrected.
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Perhaps the most compelling reason why market prices are tough to beat is the “wisdom of crowds” phenomenon. If people are asked to estimate the number of jellybeans in a jar, their average estimate is usually quite close to the truth; indeed the average guess is far better than the vast majority of individual guesses. In other words, as Michael Mauboussin of the fund-management group Legg Mason remarks, the collective is smarter than the average person within the collective.
Perhaps the most compelling reason why market prices are tough to beat is the “wisdom of crowds” phenomenon. If people are asked to estimate the number of jellybeans in a jar, their average estimate is usually quite close to the truth; indeed the average guess is far better than the vast majority of individual guesses. In other words, as Michael Mauboussin of the fund-management group Legg Mason remarks, the collective is smarter than the average person within the collective.
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But this wisdom depends on the diversity of the people making the guesses. Mr Mauboussin argues that problems occur when diversity breaks down and “groupthink” starts to take over. Investors no longer guess how many jellybeans are in the jar, but what other people's guesses might turn out to be.
But this wisdom depends on the diversity of the people making the guesses. Mr Mauboussin argues that problems occur when diversity breaks down and “groupthink” starts to take over. Investors no longer guess how many jellybeans are in the jar, but what other people's guesses might turn out to be.
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There's an old test that neatly makes this point. Participants have to choose a number between zero and 100 that will be two-thirds of the average choice of the others taking part. So if you thought the average would be 50, you would go for 33. However, if everyone makes this logical leap, the best guess should be 22 (two-thirds of 33). Extend this process a few times and you can work out that the best choice would be zero. In real life, however, not everyone is so rational and the correct answer is never that low.
There's an old test that neatly makes this point. Participants have to choose a number between zero and 100 that will be two-thirds of the average choice of the others taking part. So if you thought the average would be 50, you would go for 33. However, if everyone makes this logical leap, the best guess should be 22 (two-thirds of 33). Extend this process a few times and you can work out that the best choice would be zero. In real life, however, not everyone is so rational and the correct answer is never that low.
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Related Book: More Than You Know: Finding Financial Wisdom in Unconventional Places
- Barry Schwartz Interview
Found via Simoleon Sense. The European: The classical economic point of view is that peoples’ decisions results from a careful weighing of what will create the most desirable result. What do you advocate? Schwartz: Well, I think this picture is completely...
- Bronte Capital: Risk Management And Sounding Crazy
The mad genius is iconic in finance too. I have heard people say - even now - that Carson was sloppy and breathless in his allegations. He was not. He was right. Dismissing him as sloppy and breathless is in itself sloppy and breathless. Indeed siding...
- Wired Interview With Barry Schwartz
LONG BEACH, California -- Psychologist Barry Schwartz delivers the final presentation of TED 2009 on Saturday. Wired.com spoke to Schwartz about practical wisdom, moral skill without moral will, and the roles of hope and virtue. Wired: You call practical...
- The Perils Of The “mindless Imitation Of One’s Peers”
Mr. Buffett made some comments when speaking to a group from Notre Dame in 1991 that are relevant to what's going on today:-The last thing I want to show you, before we get onto your questions, is an ad that was run June 16, 1969, for 1,000,000 shares...
- Cfa Conference Webcasts - Mauboussin And Zweig
The Prime Directive, Sharks, and the Wisdom and Whims of the Collective -In this webcast, Michael J. Mauboussin discusses the following: - -The metrics of market efficiency: mean–variance efficiency and arbitrage opportunities. -Necessary conditions...