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The Dangers of the Anchoring Effect

9 Jul 2019

‘Anchoring’ can be most detrimental to the best interests of investors; it is, in fact, something we all have a tendency to do, and which we should almost always try to avoid. It is the tendency to evaluate buying and selling decisions around a specific number which emotionally latches itself into our minds based on dangerous misconceptions.

Conformity is Not Always Good for You

20 Feb 2019

Jane Smith is a smart young woman studying advanced mathematics at university. As she walks to the lecture room one bright morning, she is unaware that within half an hour, she will become part of an experiment. She and her fellow students take their seats as Professor Smart begins his lecture; a few minutes in, he writes a formula on the whiteboard and, one by one, asks the eight present for the answer.

The Self-Deception of Mental Accounting

17 Jan 2019

The Smith household comprises two adults, John and Mary. As a couple they run their credit cards so that at the end of each month some $2,000 is left as a debit balance on which they pay 20 per cent p.a. interest. As a separate exercise, the couple prides itself on having a savings jar in which they have $1,000 as a steady balance.

The Disposition Effect

19 Nov 2018

The ‘disposition effect’ has been described as ‘One of the most robust facts about the trading of individual investors’ (Barberis & Xiong).  Professor Hersh Shefrin (Santa Clara University, USA) describes the effect as ‘a predisposition toward get-evenitis’.

The Seduction of ‘Now’ vs the Pay-off of ‘Later’

15 Sep 2018

If you want to sit in the shade one day, plant your tree now.