By Emma Young
The British Psychological Society
May 2, 2018

A radical new theory proposes that facial expressions are not emotional displays, but “tools for social influence”

You’re at a ten-pin bowling alley with some friends, you bowl your first ball – and it’s a strike. Do you instantly grin with delight? Not according to a study of bowlers, who smiled not at a moment of triumph but rather when they pivoted in their lanes, to look at their fellow bowlers.

That study provided the earliest evidence for a controversial hypothesis, the Behavioural Ecology View (BECV) of facial displays, outlined in detail in a new opinion piece in Trends in Cognitive Sciences. Carlos Crivelli at De Montfort University, Leicester, UK and Alan Fridlund at the University of California, Santa Barbara, put forward the case that facial displays are not universal, “pre-wired” expressions of emotion – a concept supported by 80 per cent of emotion researchers in a recent poll – but are flexible tools for influencing the behaviour of other people. More…

By Christopher Krupenye
The Conversation
Feb 12, 2015

Apes Make Irrational Economic Decisions – That Includes You

Just the other day I found myself in the waiting room of an automotive dealership. While my car was being serviced, I flipped through a product brochure. One ad for an oil change boasted that it would clean out at least 90% of used oil. Another for new brakes guaranteed maximum performance for twelve months. No one was advertising oil changes that leave behind 10% sludge, or brakes that begin to fail after only a year.

That’s because advertisers know that people are sensitive to how options are framed. We appraise goods more highly when their positive attributes are emphasized over their negative attributes, even if the details describe essentially the same situation (e.g., 90% clean versus 10% dirty).

This is called attribute framing, and it’s just one example of many irrational biases that humans exhibit when making economic decisions. More…

By Steven Goldstein
April 27, 2018

Why Every Trader & Investor Should Learn about John Maynard Keynes’ Beauty Contest Theory.

…Keynes realised that markets rarely conform to what appear to be ‘the facts’, but rather that it is human emotions and feelings that tend to drive markets. Keynes used the term "animal spirits" to describe how human emotions drives crowd behaviour and the way people make decisions in markets.

Keynes' own experiences as an investor were a key factor in helping him come to these conclusions. More…

By Larry Swedroe
ETF.com
April 25, 2018

Financial Perils Of Old Age

In planning for retirement, most people—and their advisors—consider issues such as:

How much savings will be needed to maintain a desired lifestyle (in other words, what’s your “number”?)

Current assets and what rate of return will be needed to achieve the stated retirement goal

What allocation to risky assets, such as equities, is required to achieve the needed rate of return

What lifestyle adjustments can be made if risks appear?

While addressing these issues is important and necessary, the all-too-common unwillingness of the elderly to even discuss the possibility of losing their independence, and the awkwardness of the subject for other family members, unfortunately can lead to a lack of planning for the financial burdens that long-term care can impose. More…

By Rodd Wagner
Forbes
June 2, 2017
 

The Doughnut Dilemma: What The Office Pastry Teaches About Behavioral Economics

If you want to understand human nature at work, start with a doughnut

Today being National Doughnut Day it’s not tough to find a free one from Dunkin' Donuts, Krispy Kreme, Tim Hortons or many other bakers.

Place it on your desk. Then read the following warning.

Eating doughnuts or any other foods high in fat and sugar increases your risk of heart disease, obesity, diabetes, and other serious health issues.

Should you eat it? More...

By Giovanna Mazzeo Ortolani
B Bias Blog
May 2, 2017

Through the psychology of poverty

What explains the differences in economic decisions amongst poor and rich individuals?

In 2014 Johannes Haushofer and Ernst Fehr, professors at Princeton and Zurich University, respectively, have written the article “On the Psychology of Poverty” for the Science magazine (original version here). They show evidence that poverty causes psychological consequences such as negative affectivity and stress with unexpected changes in economic behavior by changing individuals’ revealed preferences and leading to short-sighted and risk-averse decision making. But what are the channels through which poverty could arise and perpetuate itself? More...

March 29, 2016
University College London

Uncertainty can cause more stress than inevitable pain

Knowing that there is a small chance of getting a painful electric shock can lead to significantly more stress than knowing that you will definitely be shocked

The study, published in Nature Communications, found that situations in which subjects had a 50% chance of receiving a shock were the most stressful while 0% and 100% chances were the least stressful. People whose stress levels tracked uncertainty more closely were better at guessing whether or not they would receive a shock, suggesting that stress may inform judgments of risk. More...

By Tadas Viskanta
Abnormal Returns
December 19, 2017

Disappointed and pessimistic: planning for life’s happiness trough

Getting old sucks.
That is, up until a point.

There is a lot of research that backs up this idea of happiness declining for the better part of four decades until we are solidly in our fifties. There are a number of reasons why our happiness, on average, traces out this U-shape. Financial Samurai proposes three reasons:

1. Hedonic adaption;
2. Responsibility for two generations; and
3. Declining health.

There is some evidence from primates that this dip in life satisfaction may be inherent, i.e. not a human construct. More...

By Eyal Winter, PhD
Psychology Today
December 21, 2017

Regrets in Finance and Romance

How does the fear of regret affect our dating behavior?

One of the most well-known biases in financial behavior is called the “disposition effect.” It refers to situations in which investors hold on tight to a losing asset. When we enter into a new investment, whether it be a mutual fund, a specific stock, or even Bitcoin, we will be very reluctant to sell the asset at a loss. We will almost always prefer to hang on to it until it picks up again, almost regardless of the prospects that it will eventually move into profit territory.

A related behavioral bias is the “sunk cost bias.” More...

By Patrick Samson
Behavioral Economics
4/12/17

HOW PREDICTABLY IRRATIONAL ARE CUSTOMERS?

Some people cringe at the term homo economicus; to others, he has become an old familiar (and quaint) friend. No doubt, the term has taken hold and remains ubiquitous. Even though the homo economicus concept is well accepted in many economic circles as a fait accompli, the term has not always brought positive reactions. The one-sided image of man has been criticized for a long time – mainly because the late 19th century theory portrays humans as consistently rational and self-interested, pursuing their ends for monetary gains. More...