Listen to the master David Dunning of Dunning-Kruger fame gives four tips for managing overconfidence:72 Always be learning – It is a strange quirk of human behavior that the more you learn, the less certain you tend to become. Dunning suggests a lifelong commitment to learning as a paradoxical means by which to attain humility. Beware beginnings –

The massive shift to index funds over the past 15 years or so drove the valuations of the largest index components to levels which guarantee poor returns going forward. Poor returns, in turn, will guarantee these inflows will turn to outflows and the virtuous cycle will become a vicious one.” Or as Nassim Taleb says, “We have been fragilizing the e

“If you don’t know who you are, Wall Street is an expensive place to find out.” — Adam Smith, The Money Game

Most people who participate in this experiment (commonly referred to as the “Free Choice Paradigm”) change their preferences upon their return. Typically we see the painting that was chosen, previously ranked Number 3, will now be ranked more highly. Conversely, the painting that was not chosen, previously ranked Number 4, will now be rated less we

In simple terms, we rationally evaluate things that do not intersect with our worldview and emotionally evaluate those that do, as part of our ongoing effort to maintain a belief in our own “rightness.”

the outside view means a more dispassionate appraisal that depends more on probability and facts than convenience and personal experience. In Think Twice, Michael Mauboussin sets forth four steps to taking an outside view of a problem. They are: Select a reference class – compare your problem to other problems like it. Assess the distribution of ou

Greg Davies shows that if you check your account daily, you’ll experience a loss just over 41% of the time. Pretty scary when we consider that human nature makes losses feel about twice as bad as gains feel good! Look once every five years and you would have only experienced a loss about 12% of the time and those peeking every 12 years would never

we will take the four pillars of behavioral risk management identified in Part Two and speak to the particulars of what they mean in the context of managing money. By way of quick reminder, they are: Ego – tendency toward overconfidence and behaving in ways that maintain feelings of personal competency over clear-eyed decision-making. Conservatism

egosyntonic satisficing is the process of making easy decisions that support a belief in a self that is good, kind and generally above average. So much of human behavior – political, religious, financial – can be explained by the fact that we want to think the best of ourselves and don’t want to work very hard to do it.