Common Causes of Very Bad Decisions by Morgan Housel

[Ed_The_Gypsy]

DEmotivational. See dispair.com

Reminds me of one of those satire motivational posters:
"None of us is dumb as all of us"

 

[paul5795]

DEmotivational. See dispair.com

Ah, despair.com. One of my long-time tribes!

One of my favorites: "The only common denominator in all your failed relationships . . . . is you."

And on a poster I had at work years ago hanging behind my door:

"All we ask here is that you give us your heart" (underneath a picture of a Mayan temple).

 

[gerntz]

This rampant on bogleheads. The advice from long time posters on that site comes from a perspective of 70 and 80 year olds, advising 30 year olds on "what I would do".

A 30 year old should not do what an 80 year old would do, financially speaking.

Nothing wrong with being 70 or 80. I hope to achieve that some day, God willing. Financial actions and strategies for people on that site, and probably this one, are vastly different because of different situations and goals.

I visit b-heads 1-2x/mo. I don't see most responses the way you see them. I see them more of recommending what they would do investment-wise if 30, not what they would for themselves at whatever age they are.

That said, yes they all reco buy & hold for long-term, not frequent changes. But they also reco rebalancing periodically or if circumstances change. If day trading ought to be the recommendation for some people, then you're right that all b-heads reco the same thing.

 

[Navigator]

I enjoyed reading this article. Years ago I was doing some research on what makes scientists successful for a class I was reaching. One thing that stood out was that older scientists would abandon an idea if there was evidence that contradicted it, but younger ones would ignore any disconfirming evidence. I find this to be true. Many people (including me) will often stick to ideas they already have, even when new information comes along.

 

[chassis]

The problem with taking advice is you may be letting someone else do your thinking for you. "Advice" should only be a data point in the decision you ultimately make.

Yes, you should listen to 70 and 80 year-olds and consider their advice and guidance as part of the equation but not the answer.

Humans usually learn better from their mistakes rather than their successes. But sometimes they learn the wrong things from either. Listening to someone tell you about how they did something and more importantly, what did not work for them, may help keep you from making a similar mistake. If nothing else you may become aware of an unanticipated potential pitfall simply because someone shared their experience with you.

Ray

@NXR7 I agree with this, to listen to people and add their views into the big pot for consideration.

This summer I was speaking with a mid-80s yr old gentleman who is/was a successful investor for himself, and whom I respect. He was talking glowingly about 3% dividend stocks. From his point of view, what he told me makes perfect sense. From my point of view as an early 50s yr old, I think it makes very little sense.

Investing discussion sites skew higher in age than many site participants may realize. This needs to be taken into account when evaluating advice.

 

[sengsational]

If more people played it with "strong convictions, loosely held", everybody would be better off. Unfortunately, that's not the default behavior mode; nobody wants to have been wrong. Read "Mistakes Were Made, But Not By Me" to get a taste of this. I find the topic fascinating.

 

[ZachTB]

A very interesting thread!

This is the tribe I strive to belong to--the tribe of people who always seek to understand, who seek new evidence, who seek wisdom, who seek to know the WHY (not just the WHAT).

Interestingly, one of the top 2 reasons I left academia is because I had a hard time finding such people.

 

[OldShooter]

A very interesting thread! This is the tribe I strive to belong to--the tribe of people who always seek to understand, who seek new evidence, who seek wisdom, who seek to know the WHY (not just the WHAT). Interestingly, one of the top 2 reasons I left academia is because I had a hard time finding such people.

I suggest some easy reading:

"Misbehaving" by Richard Thaler https://www.amazon.com/Misbehaving-Behavioral-Economics-Richard-Thaler/dp/039335279X

"Thinking Fast and Slow" by Daniel Kahneman: https://www.amazon.com/Thinking-Fast-Slow-Daniel-Kahneman/dp/0374533555

"Your Money and Your Brain" by Jason Zweig: https://www.amazon.com/Your-Money-Brain-Science-Neuroeconomics/dp/0743276698

Lots of good takeaways here (Thaler and Kahneman are Nobel winners), one of which is that none of us is as rational as we believe ourselves to be. Hence, "Misbehaving"

 

[brett]

Never been much of a follower when it came to career decisions or investing. Bit of an outlier but it seems to have worked for me.

When it comes to most decisions, especially money, it was always 'trust but verify"

I, we, have never been hesitant to accept our lack of knowledge in some areas and seek out recommended fee for service professional advice prior to making a decision with serious consequences.

Legal, accounting/tax, actuarial, finance advice...whatever. Our experience has been that the professional fee was negligible compared to the value of advice or direction received.

 

[ZachTB]

"Misbehaving" by Richard Thaler https://www.amazon.com/Misbehaving-Behavioral-Economics-Richard-Thaler/dp/039335279X

"Thinking Fast and Slow" by Daniel Kahneman: https://www.amazon.com/Thinking-Fast-Slow-Daniel-Kahneman/dp/0374533555

"Your Money and Your Brain" by Jason Zweig: https://www.amazon.com/Your-Money-Brain-Science-Neuroeconomics/dp/0743276698

Lots of good takeaways here (Thaler and Kahneman are Nobel winners), one of which is that none of us is as rational as we believe ourselves to be. Hence, "Misbehaving"

I'm actually pretty familiar with this information, though I've never read Your Money and Your Brain. My academic training was in the area of judgment and decision-making

In reply to the above academics, try checking out the work of Gerd Gigerenzer: https://hbr.org/2014/06/instinct-can-beat-analytical-thinking

It comes with the usual caveats--his arguments only hold water under certain circumstances, it doesn't necessarily invalidate the Tversky-and-Kahneman heuristics-and-biases approach, etc. But I think his work is eye-opening in its own right, and that shift in perspective should be taken seriously.

 

[ZachTB]

Never been much of a follower when it came to career decisions or investing. Bit of an outlier but it seems to have worked for me.

When it comes to most decisions, especially money, it was always 'trust but verify"

I, we, have never been hesitant to accept our lack of knowledge in some areas and seek out recommended fee for service professional advice prior to making a decision with serious consequences.

Legal, accounting/tax, actuarial, finance advice...whatever. Our experience has been that the professional fee was negligible compared to the value of advice or direction received.

If you truly trust someone/something, you don't need to verify. Though I admit that 'trust but verify' sounds better than 'hard-nosed skepticism.' I'm not afraid to admit I'm a hard-nosed skeptic

The advice of a competent professional--especially regarding finance or law--is often a bargain

 

[OldShooter]

I'm actually pretty familiar with this information, though I've never read Your Money and Your Brain. My academic training was in the area of judgment and decision-making

If that's your background, I think you'll enjoy it. His angle is biochemistry (dopamine) and how it (basically drug addiction) encourages risk taking.

In reply to the above academics, try checking out the work of Gerd Gigerenzer: https://hbr.org/2014/06/instinct-can-beat-analytical-thinking

Thanks. I went to Amazon but he has quite a bibliography. Is there one of his books that you'd recommend?

One of the good things I've gotten here is reading recommendations, like for Kahneman and Thaler.

 

[ZachTB]

Thank you, I'll be sure to check out Your Money and Your Brain! It does sound interesting!

Thanks. I went to Amazon but he has quite a bibliography. Is there one of his books that you'd recommend?

Oh, you can get most of the flavor of Gigerenzer's research program from the various web articles/brief YouTube interviews from the past 15 years or so. I personally started here: https://www.edge.org/conversation/smart-heuristics-gerd-gigerenzer

I've read "Simple Heuristics That Make Us Smart" (1999) and "Bounded Rationality: The Adaptive Toolbox" (2001). Those are both highly academic and rather dense, though less so than much academic research. To illustrate what I mean, there are chapters available here: https://pure.mpg.de/rest/items/item_2102373/component/file_2102372/content
and here: https://pure.mpg.de/rest/items/item_2102905/component/file_2102904/content

If you stick with the interviews and web articles, that'll get you to an understanding that's about as solid as reading a popular book on the topic.

But if you're interested in the nitty-gritty details, searching scholarly repositories--even simple Google searches!--will get you some of the actual research in the field. Though much academic research is stuck behind paywalls, people in JDM largely do a respectable job of keeping their information in the public domain.

 

[OldShooter]

@ZachTB, thanks for pointing me to Gigerenzer. I bought"Calculated Risks" and just finished reading. Nothing really revolutionary there IMO but he does a good job making Bayesian analysis more intuitive. I needed the help. Working with the percentages was/is hard for me.

 

[Chuckanut]

I've found that most bad decisions are made at times of anger or impatience. Often both.

 

[brett]

My SIL has lived her life being concerned about what her friends, neighbours, relatives will think of her. I have never understood this. Never will.

As a result she has led a life of consumer credit that has taken precedence over saving for retirement. Now, facing retirement with no savings whatsoever she has gone with a ill advised reverse mortgage instead of selling and moving to a more affordable residence.

 

[ZachTB]

...he does a good job making Bayesian analysis more intuitive. I needed the help. Working with the percentages was/is hard for me.

Indeed, that's one of his major thrusts. Very helpful, especially because phrases like "updating Bayesian priors" sounds REALLY intimidating!

 

[cat4ever]

They are better at rationalizing a decision when it puts them in their desired group.

I love this quote. it's been a belief of mine for a long time. And the more unreasonable decision they can rationalize and make sound "correct", the smarter they seem. I've always espoused that many academic "studies" are mostly BS because of this effect. No one gets accolades or awards for "proving" the obvious. For many, these studies are started with the goal to uncover some surprising result in the end, which slants the study from the start.