Bookmark These: The psychology of investing
By Reid Kanaley
http://www.JewishWorldReview.com | (MCT) Are your investment decisions mostly emotional ones? Psychology has so much to do with money choices that there's an entire field of study called behavioral finance. Here are some sites about it.
You thought you understood why people make the investments that they do? Think again. This page, part of the Investor Home site by financial analyst Gary Karz, explores the intriguing field of behavioral finance, which tries to figure out why so many investors make the same mistakes over and over. For example, some researchers, says Karz, believe a large number of investors suffer "irrational overconfidence" in growing companies and get "pleasure and pride" in owning growth stocks, even as they become overpriced. "Many researchers (not all) believe that these humans flaws are consistent, predictable, and can be exploited for profit," he notes.
Behavioral finance is now the subject of a yearly party for economists. It's called the Annual Meeting of the Academy of Behavioral Finance & Economics. This year's is in Los Angeles in September.
WHAT'S HOT IN BEHAVIORAL FINANCE?
Glance through abstracts of the scholarly articles in the Journal of Behavioral Finance. One piece examines how word choices and visual prompts — or "priming" — at investment sites are affecting the choices of unsophisticated investors. You may refer to that as advertising. Another attempts to explain investor behavior with use of the "Monty Hall problem" — a paradox, from the old "Let's Make a Deal" show, that says a contestant likely improves a chance of winning by changing his mind.
GO TO YALE
OK, if you've made it this far in the column, you might be ready to watch this hourlong lecture on behavioral finance by Yale University professor Robert J. Shiller, who has been talking about the subject since the early 1990s. Yale puts much of its course material online for free use by the public as part of its Open Yale program.
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