50 Psychological Experiments for Investors [Paperback]

Paul Stefansson
Executive Director, UBS AG

Why are investors sometimes their own worst enemies? As this eminently readable book shows, all sorts of biases affect investors’ judgments, ranging from sheer ignorance and emotions to overconfidence or aversions, from selected short–term memory to undue generalizations. Building on the expanding literature in behavioral economics, the experiments reported here shed a useful, often funny, light on the implicit rules investors use to form their judgment and decisions. This book will definitely help you make wiser investment decisions!

Christian Koenig
Director, Asian Center, ESSEC Business School

Mickäel Mangot provides a fantastic tool that individuals as well as financial advisors can immediately apply to their portfolios. This book’s success lies in its superbly easy–to–use format: Mangot demystifies the technical terminology of behavioral finance by linking everyday behavior to the world of investing. So while the human examples are enjoyable and interesting (you’ll chuckle when you recognize these traits in yourself), he deftly explains how these very human biases lie at the root of 57 simple but very damaging investment mistakes. Most importantly, each conclusion provides a concise, sensible summary to help you correct—and improve—your investment decisions.

Philippa Huckle
CEO, The Philippa Huckle Group

This is an insightful book that forces one to question one’s own financial behavior. 50 Psychological Experiments for Investors covers different topics such as savings, equity investment and property investment. The portrait of the investor presented here is harsh but can be highly profitable for anyone who recognizes that he or she is vulnerable to misjudgments and misguided emotions. A must–read for any self–questioning investor.

Jacques–Henri David
Vice Chairman Global Banking, Deutsche Bank

But all is not necessarily lost. A confrontation of the opposing points of view of economics and psychology has given birth to a new area of research, called behavioral economics, which elucidates how people in the real world make their economic decisions. This dynamic new discipline was endorsed by the awarding of the Nobel Prize in Economics to one of the discipline’s originators, Daniel Kahneman. Since its beginnings in the 1980s, it has highlighted clear differences between the economic and financial behavior of real individuals and what they would do if they were completely rational. An impressive volume of studies conducted worldwide now draws a clear picture of the investor and the personal faults that prevent him from performing.

In this book, a little over 50 experiments run by scientists on different psychological factors affecting investment decisions are presented. The most important questions are treated: allocation of income to savings, planning for retirement, choice between assets, selection of mutual funds, appetite for real estate, hesitancy to invest in stocks, gender differences, and so on. Mentioned too are anecdotal aspects of the problem, such as the Monday blues which take hold of the grumpy and overcautious side of the investor at the start of the week. These 50–odd experiments allow a better understanding of our financial decisions. They offer information both for investing wisely and for knowing ourselves better.