Categories
Irrational Investments Uncategorized

Narrative fallacy: how pretty stories can turn into an investing nightmare.

Narrative Fallacy in a nutshell. As human beings, we love stories so much that we let our preference for a good story cloud the ability to make rational decisions. However, stories may negatively govern the way we think, that is we may be drawn towards a less desirable outcome simply because it has a better […]

Categories
Irrational Investments

Irrational men down rational markets

A “compromise” between the traditional and behavioral approach Markets are efficient. This is the main underlying assumption in Economics and Finance, and it means that any asset price should reflect all the available information, stating the homonymous Efficient Market Hypothesis. Although we can have different forms of efficiency, the main concept that this theory wants […]

Categories
Irrational Investments

Extrapolation: predicting the future

In the stock market, belief formation is one of the most critical challenges. In our “Finance Tuesdays” series, the first three articles are also focused on belief formation: “availability bias and investments” analyses how people estimate probability based on prevalence or familiarity, “Book review ‘a crisis of beliefs’” is about a novel interpretation of the credit cycle based on representativeness and diagnostic expectations, “Dividend anomaly” introduces mental accounting and […]

Categories
Irrational Investments

“Why do fools rush in?” How availability bias can shape your investments

“Fools rush in where angels fear to tread.” —Alexander Pope “Why do fools rush in?” Maybe they suffer from availability bias, a simple rule of thumb or mental shortcut that causes people to estimate the probability of an outcome based on how prevalent or familiar that outcome appears in their lives. People exhibiting this kind […]

Categories
Irrational Investments

Cashless Italia

Italy for Nudges by promoting incentives for non-cash payments This article aims to explain the underlying aspects of the “National Cashback”, a new program planned by the Italian Government. This article presents the ongoing program “Italia Cashless“, a name that has been present in the news over the last few weeks, analyzed under nudge theory, […]

Categories
Irrational Investments Our Work

Behavioural insights into financial bubbles

Financial bubbles is one of the topics in economics that are intuitive to most people, except for economists. A financial, or speculative bubble, is characterized by a rapid increase in prices of an asset, without much consideration for its intrinsic value, followed by a burst, that is, a sudden reduction in prices. Seems simple enough, […]

Categories
Irrational Investments

Rogue and overconfident

Even the most expert and talented trader can be misled by human irrationality It is a widespread belief that greed for money has always been driving financial markets since their foundation. Both the fruitful transformations and the toughest crises, which have affected the financial industry, have been strongly guided by the desire of achieving new […]