Daniel Kahneman passed away recently
He changed the world of behavioral finance
Here are 10 things I learned from his book Thinking Fast and Slow as a way to say thank you: x.com
He changed the world of behavioral finance
Here are 10 things I learned from his book Thinking Fast and Slow as a way to say thank you: x.com
1️⃣ Our brain uses two systems: System 1 and System 2
System 1 is fast, intuitive and automatic. It is prone to biases and errors such as overconfidence.
System 2 is slow, analytical, and deliberate. It is necessary for complex tasks requiring focused attention. x.com
System 1 is fast, intuitive and automatic. It is prone to biases and errors such as overconfidence.
System 2 is slow, analytical, and deliberate. It is necessary for complex tasks requiring focused attention. x.com
2️⃣ Irrationality
Humans are not rational. We all make many mistakes.
90% of Americans believe they drive better than most, and 70% think they're smarter than average. x.com
Humans are not rational. We all make many mistakes.
90% of Americans believe they drive better than most, and 70% think they're smarter than average. x.com
3️⃣ Prospect theory
The prospect theory suggests that people feel losses twice as hard as gains.
Many people don't want to play a Heads or Tails game where they can win $100 but risk losing $50.
You should take this bet every single day. x.com
The prospect theory suggests that people feel losses twice as hard as gains.
Many people don't want to play a Heads or Tails game where they can win $100 but risk losing $50.
You should take this bet every single day. x.com
4️⃣ The Halo Effect
The halo effect is a bias. Your view of a person shapes how you see their traits.
If you like them, you may think they're better than they are, and the opposite is true if you don’t. x.com
The halo effect is a bias. Your view of a person shapes how you see their traits.
If you like them, you may think they're better than they are, and the opposite is true if you don’t. x.com
5️⃣ Availability heuristic
The availability heuristic is a bias where we judge how likely something is by how easily we remember it.
For example, after 9/11, many people became scared of flying. x.com
The availability heuristic is a bias where we judge how likely something is by how easily we remember it.
For example, after 9/11, many people became scared of flying. x.com
6️⃣ Sunk cost fallacy
The sunk cost fallacy is when you keep doing something even though it's bad, just because you already spent time or money on it.
Like watching a bad movie to the end because you paid for the ticket. x.com
The sunk cost fallacy is when you keep doing something even though it's bad, just because you already spent time or money on it.
Like watching a bad movie to the end because you paid for the ticket. x.com
7️⃣ Confirmation bias
People often look for facts that support what they already believe. They ignore facts that disagree.
As an investor, talk to those with different views. It can teach you a lot. x.com
People often look for facts that support what they already believe. They ignore facts that disagree.
As an investor, talk to those with different views. It can teach you a lot. x.com
8️⃣ Hindsight bias
This is the way people think after an event. They believe they could have seen it coming.
For example, after a baseball game, you might say you knew the winning team would win. x.com
This is the way people think after an event. They believe they could have seen it coming.
For example, after a baseball game, you might say you knew the winning team would win. x.com
9️⃣ Framing effect
When the way information is shown affects your choices and views, we call it a framing effect. x.com
When the way information is shown affects your choices and views, we call it a framing effect. x.com
🔟 Anchoring effect
The anchoring effect is a bias.
It happens when you depend too much on the first bit of info you get. This can affect your choices. x.com
The anchoring effect is a bias.
It happens when you depend too much on the first bit of info you get. This can affect your choices. x.com
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