One of the problems with making sound investment decisions is the inability to make consistently rational decisions. The number of times I have made investment decisions (buy or sell) which I have subsequently viewed as being, for want of a better word, dumb is depressingly high. Buying into bubbles with regrettable frequency is my most common error of judgement.
Recognising that this is a common problem for investors, I picked up a copy of "Your Money & Your Brain" by Jason Zweig. Zweig explains why people make so many irrational decisions and provides some very basic advice for dealing with issues like overconfidence, group think and inaccurate risk assessment.
On the whole the book was useful and interesting. Behavioural economics is certainly a subject which it helps investors to have at least some basic knowledge of (Zweig uses the term "neuroeconomics) and this is a helpful introduction. The frequent case studies and summaries of psychology experiments served to illustrate the issues and helped frame the solutions. My one gripe is that Zweig included the much used but fatally flawed psychology experiment involving supposedly equivalent decisions about either saving part of a population from a disease or allowing part of the population to die.
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