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Saturday, 28 March 2020

Lockdown Learning: A Reading List for Behavioral Investing

If, like me, you find yourself with an unexpected amount of leisure time you may want to spend some of it catching up on your investing education. At the very least it’ll be a distraction from the chaos out in the real-world, and even if you don’t learn anything it’ll probably stop you from trading ...

Read on...

Irrationality: The Enemy Within by Stuart Sutherland
Updated version of a classic with an afterword that adds to this what we've learned in the 20 years or so since Sutherland wrote this. Its scope is extensive, far beyond investing, but none for the worse for that as it provides an excellent primer for how cognitive processes are unconsciously biased.

Thinking Fast and Slow by Daniel Kahneman
You couldn't have a list of books on the topic without including this - but it is a relatively limited view of the topic and, personally, I didn't always find it hugely engaging. At the heart of it though is the fundamental concept of the fast and slow parts of our cognitive processes and how the fast is often the enemy of the good. Worth reading, but one to take your time over.

The Undoing Project by Michael Lewis
This is classic Lewis writing about how Daniel Kahneman and Amos Tversky developed their ideas, including blind alleys and errors along the way. To boot it includes some great examples of how behavioural bias impacts real world decisions and throws in a primer on the history of Israel. Pretty much all of Lewis' stuff is worth reading but it's interesting that he starts by explaining he didn't know about the background when he wrote Moneyball.

Gigerenzer has a completely different approach to behavioural psychology than Kahneman - but it's one that makes absolute sense. In this book he writes about how we can make better decisions and better understand the mass of data that we're bombarded with. He takes aim not just at the financial sector but also the healthcare industry. If there's one book on this list you should read this is it.

The Why Axis by John List and Uri Gneezy
Famously List and Gneezy specialise in field experiments - finding real-world situations that allow them to analyse behavioural bias. It's focused on their own work but it adds another dimension to our understanding of cognitive bias and how we can go about understanding ourselves.

Flow: The Psychology of Optimal Experience by Mihaly Csikszentmihalyi
A different sort of book, but one that I think gives an insight into the human condition and how we can ensure that we lead positive lives. It's not a self-help book, although it is helpful. And, at the moment, I think it's the kind of book that people will get a lot out of.

Factfulness by Hans Roslen
This was Hans Roslen's last work before he passed away. He shows that we consistently overestimate the risks of most things while pretty much ignoring the ones that really matter - like a flu based pandemic (oh, yes, he predicted it). He provides a range of useful mental tools for guarding against the biggest problems we create for ourselves. The style won't be to everyone's taste but the message is important - now more than ever.
Silver is famous for using data to make wide scale predictions. In this book he explains how forecasting really works and why many of our predictions are so wrong. The truth is that some things are just too uncertain to be sure of - but that doesn't stop people from thinking they can predict the future. The vast majority of people can't, and we need to learn to distinguish those who can from the noise of those who can't.

The Marshmallow Test by Walter Mischel
In tricky times nothing is more important that self-control and Mischel wrote the book on it - and this is it. Even if you don't learn much about yourself you'll learn why you really need to instill self-control in your kids, but hopefully it may help curb your more impulsive trading, just a bit.

Mindfulness by Ellen Langer
Langer's not a self-help guru but a world famous behavioural psychologist. It's pretty old now but if you want something thoughtful which may help give you an insight into how to control yourself and get a bit more out of life then it's recommended. Sometimes we just need to stand back and take a look at ourselves and for many of us now is probably as good a time as we'll ever get.

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Hope you find something to help and/or entertain. Stay safe.

(P.S. I get a tiny amount of income if you purchase through the links which I recycle into yet more reading. But feel free to look them up separately if you prefer).

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