506 Quotes About Decision-making

This book could have easily been three words long: automate, automate, automate. It likely wouldn't have sold well, and you might have ignored the advice on account of it seeming too simple, but the fact is that many of the thornier elements of emotion can be done away with entirely by slavishly following a system of investment rules in all types of market weather.

Being a behavioral investor is less about adhering to some textbook notion of rationality and more about understanding and bending the idiosyncrasies of human nature to our advantage.

For a factor to be worthwhile to a behavioral investor it must be empirically supported, theoretically sound and behaviorally intransigent.

One of the things that makes adhering to probabilities so difficult (and profitable) for an investor is that emotion has a pronounced impact on how we assess probability. Predictably, positive emotion leads us to overstate the likelihood of positive occurrences and negative emotion does just the opposite. This coloring of probability leads us to misapprehend risk… All too often we confuse the intensity of our longing with the probability of our winning.

But the paradox in owning our personal mediocrity is that it makes us, in the strictest sense of the word, exceptional. It is not about believing in yourself - in fact, it’s quite the opposite. It’s about realizing that the less you need to be special, the more special you’ll become… Exceptional investment outcomes are attainable by all of us, if we just stop trying so hard.

Far from seamlessly assimilating new ideas into our existing belief framework, research shows that we actually tend to get more firm in our cherished beliefs when those beliefs become challenged.

So much of human behavior - political, religious, financial - can be explained by the fact that we want to think the best of ourselves and don’t want to work very hard to do it.

Equity markets provide an exception to the heuristic that social coherence trumps logic. You were born to fit in, but investing requires you to stand out. You are wired to protect your ego, but success in markets demand that you subvert it. You are programmed to ask, “Why?”, but must learn to ask, “Why not?

We are neither robotically systematic nor wholly idiotic when making investment decisions. To be sure, we do our best to remain objective and make good decisions, but we are strongly influenced by our cognitive limitations and the cloudy lens through which we see the world. But behavioral approaches, which showcased the limitations of our mental computers, simultaneously gave us the notion that what we consumed mattered greatly.