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Randy Sabourin & Cam Anderson
|Neurofinance:The Brain and the Heart|
Investors and Advisors alike have come to accept the efficient market school theory that maintains that market activity is based on people making rational economic choices. But the reality is that people act on their emotions constantly and often unconsciously. We become overconfident or fearful, "irrationally exuberant" or regretful. Our herd mentality often takes over while we perceive and frame our investing options in unusual ways. But why? Neurofinance seeks to answer this question.
Neurofinance combines psychology, economics, and neuroscience, to study how people make investment decisions. The goals of neurofinance are to identify the psychological inputs that impact trading behavior and then connect these traits to trading success or failure. It also looks to develop the training methods to improve performance and lower risk.
There are certain behaviors that hold potential implications for investors. The following is an overview of 11 common behaviors demonstrated by both investor and advisor:
- Overconfidence and Hubris. Individuals generally assume they know more than they actually do. They also tend to remember previous financial decisions in ways that exaggerate their own foresight. This can lead to overly aggressive decisions and a reluctance to admit-and correct-mistakes. The "illusion of control" and "how great gains change the brain" are common themes explored in the field. Effective questioning techniques of investors and/or advisors help to uncover and correct this investment behavior.
- Excitement, Greed and Irrational Exuberance. It is important to understand how these three motivators impact investment decisions. From Stock Spam Scams to Behavioral Investment Allocation Strategy (the BIAS model), we consciously or unconsciously deal with these drivers every day.
Read the rest of the article...
There was a time when being stuck in traffic was a source of great frustration. Now it is an opportunity - you can sip your latte while you make some calls, check your email on your blackberry, and listen to the latest headline news. Sound familiar. If so, you probably consider yourself a master multi-tasker. It's a point of pride for many. Why do just two or three things at once when you can do four or five? In fact, isn't that what digital devices are for - to lighten our load by allowing us to accomplish more in less time. Yet this is rarely how it plays out. Instead the ability to connect and communicate instantly has led to highly disruptive work environments and low productivity. Read more...
On Thursday September 8, the NeuroLeadership Network will be meeting in Toronto at 5pm to discuss the implications of multi-tasking in the work place. Through a discussion facilitated by Alison Williams, BMO Capital Markets, we will look at the following questions:
- Is multi-tasking the new operating paradigm?
- What are the benefits?
- What are the risks?
- How do we adapt and address the attendant risks?
- Can technology be the answer?
Join us on September 8 and lend your voice to this most pertinent debate. To join please go to the LinkedIn Group and RSVP.