We all like to think we’re smart. If we didn’t think we were going to make money, we wouldn’t invest. But here’s a cold splash of water: 93% of American drivers think they’re “above average.” Mathematically, that’s impossible.
Chapter 3 of Pompian’s book is short but important. It is the setup chapter. Before getting into 20 specific biases over the next 20 chapters, he wants you to understand what biases are, why they matter, and how they break down into categories.
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.
Chapter 2 of “Behavioral Finance for Private Banking” is where the book gets really practical. This is where Hens, De Giorgi, and Bachmann lay out the specific mental traps that mess up our investment decisions. And there are a lot of them.