Monday, June 29, 2009

Using Psychology To Save You From Yourself : NPR

Seems like everywhere we look we see another Behavioral Finance Story. This story (also in audio format) is from NPR:

Using Psychology To Save You From Yourself : NPR:

"...devotees of behavioral economics — a school of economic thought greatly influenced by psychological research — which argues that the human animal is hard-wired to make errors when it comes to decision-making, and therefore people need a little "nudge" to make decisions that are in their own best interests.

.....This is the story of how obscure psychological research into human decision-making first revolutionized economics and now appears poised to remake the relationship between the government and its citizens

Later the piece goes on to discuss the "illusion of validity". Which is the unshaken belief that we are better than we are. And to which I reply a resounding "Guilty as Charged."

"It's a problem that afflicts us all, says Kahneman, who won the 2002 Nobel Prize in economics for his work on this subject. From stockbrokers to baseball scouts, people have a huge amount of confidence in their own judgment, even in the face of evidence that their judgment is wrong.

But that mistake is just one of many cognitive errors identified by Kahneman and his frequent collaborator, psychologist Amos Tversky. For more than a decade, the two worked together cataloging the ways the human mind systematically misjudges the world around it."

Good stuff. The audio is about 9 minutes long but well worth it.

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