Thursday, March 19, 2009

What March Madness taught me about finance

As I told my class I always feel guilty this time of year. I just filled out the annual NCAA March Madness bracket.

I did not fill it our according to top picks, nor even most popular picks, nor by going by the betting line. Why? Because picking upsets is fun.

So what does this have to do with finance? It might explain why investors pick "glamor" stocks or stocks that are seen as exciting. The investor wants to talk/brag about it. (Same argument can be used as to why some investors select socially responsible investments even though the return may be lower.

Is it wrong? No, just remember that you are maximizing your utility and NOT your expected returns.

Want to play too? here, just started a new group. If you want in, click here.

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