Up to this point in the book, Malkiel has described theories built on a simple assumption: investors are rational. They weigh risks, calculate value, and make sensible decisions. Chapter 10 throws all of that out the window. Because here’s the thing. People are not rational. And two psychologists, Daniel Kahneman and Amos Tversky, spent decades proving it.
So we made it. 9 chapters, 17 posts, one brain that’s a little more aware of its own tricks.
This was “Investing Psychology: The Effects of Behavioral Finance on Investment Choice and Bias” by Tim Richards (ISBN: 978-1-118-72219-0, Wiley 2014). And it was worth every page.
Chapter 3 of Behavioral Finance and Investor Types by Michael M. Pompian is where the real meat starts. This is the catalog of all the ways your brain sabotages your investing. Pompian calls them “the building blocks” and splits them into two big groups: cognitive biases and emotional biases.
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Chapter 1 of Investing Psychology is called “Sensory Finance.” And it starts with a punch to the ego.
I just finished reading “Investing Psychology: The Effects of Behavioral Finance on Investment Choice and Bias” by Tim Richards. And I need to talk about it.