Behavioral Finance Quotes

There’s a famous Russian proverb about this type of behavior. One day, a poor villager happens upon a magic talking fish that is ready to grant him a single wish. Overjoyed, the villager weighs his options: “Maybe a castle? Or even better—a thousand bars of gold? Why not a ship to sail the world?” As the villager is about to make his decision, the fish interrupts him to say that there is one important caveat: whatever the villager gets, his neighbor will receive two of the same. Without skipping a beat, the villager says, “In that case, please poke one of my eyes out.

Our goal is more modest: We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful.

70% of Americans live paycheck to paycheck. Seven out of ten people you walk past going down the sidewalk are broke. You can model your life after them, and you will be one of them. Or you can mode your life after the weird people. Because wealth is unusual. It’s not normal. So you have to engage in unusual behaviors and habits to create unusual results

Under the tenets of behavioral finance, markets are not always efficient. It is human behavior that moves markets and not the universal information shared by market participants.

Human Nature is not a problem that can be fixed by rules and regulations. All solutions to the existing problems must be based on how people behave, not on how we think they should behave.

The fact that people are fallible is your biggest enduring advantage in the accumulation of greater wealth. The fact that you are just as fallible is the biggest impediment to that very same goal.

In many ways the effect of the crash on embezzlement was more significant than on suicide. To the economist embezzlement is the most interesting of crimes. Alone among the various forms of larceny it has a time parameter. Weeks, months, or years may elapse between the commission of the crime and its discovery. (This is a period, incidentally, when the embezzler has his gain and the man who has been embezzled, oddly enough, feels no loss. There is a net increase in psychic wealth.) At any given time there exists an inventory of undiscovered embezzlement in — or more precisely not in — the country’s businesses and banks. This inventory — it should perhaps be called the bezzle — amounts at any moment to many millions of dollars. It also varies in size with the business cycle. In good times people are relaxed, trusting, and money is plentiful. But even though money is plentiful, there are always many people who need more. Under these circumstances the rate of embezzlement grows, the rate of discovery falls off, and the bezzle increases rapidly. In depression all this is reversed. Money is watched with a narrow, suspicious eye. The man who handles it is assumed to be dishonest until he proves himself otherwise. Audits are penetrating and meticulous. Commercial morality is enormously improved. The bezzle shrinks. … Just as the boom accelerated the rate of growth, so the crash enormously advanced the rate of discovery. Within a few days, something close to a universal trust turned into something akin to universal suspicion. Audits were ordered. Strained or preoccupied behavior was noticed. Most important, the collapse in stock values made irredeemable the position of the employee who had embezzled to play the market. He now confessed.

The psychology of individuals – warts and all – must be a central consideration in the formulation of any practical investing approach. The good news here is that others’ misbehavior will consistently and systematically create opportunities for you. The bad news is that you are prone to all of the same quirks and are just as likely, in the absence of strict adherence to the rules, to create the same opportunities for others.

What I am proposing here is that you consistently bet on inconsistency. What I am asking you to do is bet unfailingly on the failures of human reason, which is a sure bet indeed. It is a painful thing to admit that education, intellect and willpower are inadequate to make you the type of investor you would like to be, but it’s not as painful as losing money.

Let your ways and actions be in honor of Christ

If anyone could anticipate a market drop, no one would ever invest in the market above the level to which it will decline. That is to say, market corrections are unforeseen events.

Since money is fungible, efforts to save small amounts on small purchases are absurd if you ignore them during pricier transactions. $1.75 is still worth $1.75.

Once bitten, twice shy isn't a very good investment strategy.

More often than not, extreme events revert to the mean—the average—for no other reason than that result is more likely.

Human behavior and information bias play a huge role in transaction prices. It creates short-term opportunities that can be exploited.

Identical information can lead to opposite conclusions based on relative perceptions of its receivers.

Humans are not machines. They analyze information through the lenses of their experience, knowledge, and cognitive biases. All of it makes their perception, their unique viewpoint.

If you are wearing yellow goggles, every blue thing will appear green to you. It is your perception, and it is your reality.

The human tendency is to seek shelter in ex post explanations that often reduce the tails to nothing more than a reconstruction of previously held beliefs.

Economic conditions may differ from period to period, but human psychology is embedded among us and will not change.

Market participants are humans, and so are their behaviors.

Humans’ reactions are contaminated with their cognitive biases, greed, fear, and survival instinct. However, capital market success requires precisely the opposite behavior of what your intuition is suggesting.

Imagine a world where you could gain more knowledge by reading fewer books, see more of the world by minimizing travel and get more fit by doing less exercise. Certainly, a world where doing less gets you more is highly inconsistent with much of our lived experience, but is just the way Wall Street Bizarro World operates. If we are to learn to live in WSBW (and we must), one of the primary lessons to be learned is to do less than we think we should.

I began this process without preconceptions of how the information would shake out. Five consistent types of behavioral risk emerged: Ego, Emotion, Information, Attention, and Conservation. The number of bad decisions we can make is limitless (have you seen reality TV?), but all behavioral risk has one or more of these five risk factors at its core.

Your life right now—everything from your work and your health to your relationships and your finances—is the result of choices you’ve made in the past. The job you have right now is a choice that you made at some point. And, whether you realize it or not, a choice you’ve made every day since. You can tell yourself that you have to do the work you do, but the truth is, you don’t. It’s a choice. Are you carrying around ten or twenty pounds of lifestyle-related fat? That’s the result of thousands of choices that you made over recent days, weeks, months and years.  How about your significant other, or your close friendships? They’re all choices.  Your furniture, the food in your fridge, the car you drive. They’re all choices. They are all, without exception, the results of your past behavior. The same thing applies to wealth.

Groups have powerful self-reinforcing mechanisms at work. These can lead to group polarization—a tendency for members of the group to end up in a more extreme position than they started in because they have heard the views repeated frequently. At the extreme limit of group behavior is groupthink. This occurs when a group makes faulty decisions because group pressures lead to a deterioration of “mental efficiency, reality testing, and moral judgment.” The original work was conducted with reference to the Vietnam War and the Bay of Pigs fiasco. However, it rears its head again and again, whether it is in connection with the Challenger space shuttle disaster or the CIA intelligence failure over the WMD of Saddam Hussein. Groupthink tends to have eight symptoms: 1 . An illusion of invulnerability. This creates excessive optimism that encourages taking extreme risks. [...] 2. Collective rationalization. Members of the group discount warnings and do not reconsider their assumptions. [...] 3. Belief in inherent morality. Members believe in the rightness of their cause and therefore ignore the ethical or moral consequences of their decisions. 4. Stereotyped views of out-groups. Negative views of “enemy” make effective responses to conflict seem unnecessary. Remember how those who wouldn't go along with the dot-com bubble were dismissed as simply not getting it. 5. Direct pressure on dissenters. Members are under pressure not to express arguments against any of the group’s views. 6. Self-censorship. Doubts and deviations from the perceived group consensus are not expressed. 7. Illusion of unanimity. The majority view and judgments are assumed to be unanimous. 8. "Mind guards" are appointed. Members protect the group and the leader from information that is problematic or contradictory to the group's cohesiveness, view, and/or decisions. This is confirmatory bias writ large.

If you are going to use probability to model a financial market, then you had better use the right kind of probability. Real markets are wild. Their price fluctuations can be hair-raising-far greater and more damaging than the mild variations of orthodox finance. That means that individual stocks and currencies are riskier than normally assumed. It means that stock portfolios are being put together incorrectly; far from managing risk, they may be magnifying it. It means that some trading strategies are misguided, and options mis-priced. Anywhere the bell-curve assumption enters the financial calculations, an error can come out.

On a smart contract platform, the possibilities rapidly expand beyond what developers desiring to integrate various applications can easily handle. This leads to the adoption of standard interfaces for different types of functionality. On Ethereum, these standards are called Ethereum Request for Comments (ERC). The best known of these define different types of tokens that have similar behavior. ERC-20 is the standard for fungible tokens and defines an interface for tokens whose units are identical in utility and functionality.2 It includes behavior such as transferring units and approving operators for using a certain portion of a user's balance.

Finance is concerned with the relations between the values of securities and their risk, and with the behavior of those values. It aspires to be a practical, like physics or chemistry or electrical engineering. As John Maynard Keynes once remarked about economics, “If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.” Dentists rely on science, engineering, empirical knowledge, and heuristics, and there are no theorems in dentistry. Similarly, one would hope that nance would be concerned with laws rather than theorems, with behavior rather than assumptions. One doesn’t seriously describe the behavior of a market with theorems.

Dr. Thomas Sowell, senior fellow at the Hoover Institute, Stanford University, notes that “There was a time when the purpose of taxes was to pay the inevitable costs of government. To the political left, however, taxes have long been seen as a way to redistribute income and finance other social experiments based on liberal ideology.”3 The consequences for the rising generation and future generations of the statists’ immoral, politically expedient, and economically ruinous behavior and policies are unambiguous as evidenced by statistic after statistic, which are mainly ignored, discounted, or excused by most of the media, academia, and, of course, governing statists. Nonetheless, there is no mistaking the eventual societal turmoil these facts and figures portend—evidence all Americans, and especially younger people, must heed.

These new taxes and the nationalization of finance meant the U.S. government would soon be dealing with a healthy budget surplus. Universal health care, free public education through college, a living wage, guaranteed full employment, a year of mandatory national service, all these were not only made law but funded. They were only the most prominent of many good ideas to be proposed, and please feel free to add your own favorites, as certainly everyone else did in this moment of we-the-peopleism. And as all this political enthusiasm and success caused a sharp rise in consumer confidence indexes, now a major influence on all market behavior, ironically enough, bull markets appeared all over the planet. This was intensely reassuring to a certain crowd, and given everything else that was happening, it was a group definitely in need of reassurance. That making people secure and prosperous would be a good thing for the economy was a really pleasant surprise to them. Who knew?

Since the 1970s, the battlefields on which the contradictions of democratic capitalism are fought out have become ever more complex, making it exceedingly difficult for anyone outside the political and financial elites to recognize the underlying interests and identify their own. While this may generate apathy on the mass level and thereby make life easier for the elites, there is no relying on it, in a world in which blind compliance with financial investors is propounded as the only rational and responsible behavior. To those who refuse to be talked out of other social rationalities and responsibilities, such a world may appear simply absurd - at which the only rational and responsible conduct to throw as many as wrenches as into the works of haute finance. Where democracy as we know it is effectively suspended, as it already is in countries like Greece, Ireland, and Portugal, street riots and popular insurrection may be the last remaining mode of political expression for those devoid of market power. Should we hope in the name of democracy that we will soon have the opportunity to observe a few more examples?

The Proofs Human society has devised a system of proofs or tests that people must pass before they can participate in many aspects of commercial exchange and social interaction. Until they can prove that they are who they say they are, and until that identity is tied to a record of on-time payments, property ownership, and other forms of trustworthy behavior, they are often excluded—from getting bank accounts, from accessing credit, from being able to vote, from anything other than prepaid telephone or electricity. It’s why one of the biggest opportunities for this technology to address the problem of global financial inclusion is that it might help people come up with these proofs. In a nutshell, the goal can be defined as proving who I am, what I do, and what I own. Companies and institutions habitually ask questions—about identity, about reputation, and about assets—before engaging with someone as an employee or business partner. A business that’s unable to develop a reliable picture of a person’s identity, reputation, and assets faces uncertainty. Would you hire or loan money to a person about whom you knew nothing? It is riskier to deal with such people, which in turn means they must pay marked-up prices to access all sorts of financial services. They pay higher rates on a loan or are forced by a pawnshop to accept a steep discount on their pawned belongings in return for credit. Unable to get bank accounts or credit cards, they cash checks at a steep discount from the face value, pay high fees on money orders, and pay cash for everything while the rest of us enjoy twenty-five days interest free on our credit cards. It’s expensive to be poor, which means it’s a self-perpetuating state of being. Sometimes the service providers’ caution is dictated by regulation or compliance rules more than the unwillingness of the banker or trader to enter a deal—in the United States and other developed countries, banks are required to hold more capital against loans deemed to be of poor quality, for example. But many other times the driving factor is just fear of the unknown. Either way, anything that adds transparency to the multi-faceted picture of people’s lives should help institutions lower the cost of financing and insuring them.

Any relationship will have its difficulties, but sometimes those problems are indicators of deep-rooted problems that, if not addressed quickly, will poison your marriage. If any of the following red flags—caution signs—exist in your relationship, we recommend that you talk about the situation as soon as possible with a pastor, counselor or mentor. Part of this list was adapted by permission from Bob Phillips, author of How Can I Be Sure: A Pre-Marriage Inventory.1 You have a general uneasy feeling that something is wrong in your relationship. You find yourself arguing often with your fiancé(e). Your fiancé(e) seems irrationally angry and jealous whenever you interact with someone of the opposite sex. You avoid discussing certain subjects because you’re afraid of your fiancé(e)’s reaction. Your fiancé(e) finds it extremely difficult to express emotions, or is prone to extreme emotions (such as out-of-control anger or exaggerated fear). Or he/she swings back and forth between emotional extremes (such as being very happy one minute, then suddenly exhibiting extreme sadness the next). Your fiancé(e) displays controlling behavior. This means more than a desire to be in charge—it means your fiancé(e) seems to want to control every aspect of your life: your appearance, your lifestyle, your interactions with friends or family, and so on. Your fiancé(e) seems to manipulate you into doing what he or she wants. You are continuing the relationship because of fear—of hurting your fiancé(e), or of what he or she might do if you ended the relationship. Your fiancé(e) does not treat you with respect. He or she constantly criticizes you or talks sarcastically to you, even in public. Your fiancé(e) is unable to hold down a job, doesn’t take personal responsibility for losing a job, or frequently borrows money from you or from friends. Your fiancé(e) often talks about aches and pains, and you suspect some of these are imagined. He or she goes from doctor to doctor until finding someone who will agree that there is some type of illness. Your fiancé(e) is unable to resolve conflict. He or she cannot deal with constructive criticism, or never admits a mistake, or never asks for forgiveness. Your fiancé(e) is overly dependant on parents for finances, decision-making or emotional security. Your fiancé(e) is consistently dishonest and tries to keep you from learning about certain aspects of his or her life. Your fiancé(e) does not appear to recognize right from wrong, and rationalizes questionable behavior. Your fiancé(e) consistently avoids responsibility. Your fiancé(e) exhibits patterns of physical, emotional or sexual abuse toward you or others. Your fiancé(e) displays signs of drug or alcohol abuse: unexplained absences of missed dates, frequent car accidents, the smell of alcohol or strong odor of mouthwash, erratic behavior or emotional swings, physical signs such as red eyes, unkempt look, unexplained nervousness, and so on. Your fiancé(e) has displayed a sudden, dramatic change in lifestyle after you began dating. (He or she may be changing just to win you and will revert back to old habits after marriage.) Your fiancé(e) has trouble controlling anger. He or she uses anger as a weapon or as a means of winning arguments. You have a difficult time trusting your fiancé(e)—to fulfill responsibilities, to be truthful, to help in times of need, to make ethical decisions, and so on. Your fiancé(e) has a history of multiple serious relationships that have failed—a pattern of knowing how to begin a relationship but not knowing how to keep one growing. Look over this list. Do any of these red flags apply to your relationship? If so, we recommend you talk about the situation as soon as possible with a pastor, counselor or mentor.

The genius of the current caste system, and what most distinguishes it from its predecessors, is that it appears voluntary. People choose to commit crimes, and that’s why they are locked up or locked out, we are told. This feature makes the politics of responsibility particularly tempting, as it appears the system can be avoided with good behavior. But herein lies the trap. All people make mistakes. All of us are sinners. All of us are criminals. All of us violate the law at some point in our lives. In fact, if the worst thing you have ever done is speed ten miles over the speed limit on the freeway, you have put yourself and others at more risk of harm than someone smoking marijuana in the privacy of his or her living room. Yet there are people in the United States serving life sentences for first-time drug offenses, something virtually unheard of anywhere else in the world. The notion that a vast gulf exists between “criminals” and those of us who have never served time in prison is a fiction created by the racial ideology that birthed mass incarceration, namely that there is something fundamentally wrong and morally inferior about “them.” The reality, though, is that all of us have done wrong. As noted earlier, studies suggest that most Americans violate drug laws in their lifetime. Indeed, most of us break the law not once but repeatedly throughout our lives. Yet only some of us will be arrested, charged, convicted of a crime, branded a criminal or felon, and ushered into a permanent undercaste. Who becomes a social pariah and excommunicated from civil society and who trots off to college bears scant relationship to the morality of crimes committed. Who is more blameworthy: the young black kid who hustles on the street corner, selling weed to help his momma pay the rent? Or the college kid who deals drugs out of his dorm room so that he’ll have cash to finance his spring break? Who should we fear? The kid in the ’hood who joined a gang and now carries a gun for security, because his neighborhood is frightening and unsafe? Or the suburban high school student who has a drinking problem but keeps getting behind the wheel? Our racially biased system of mass incarceration exploits the fact that all people break the law and make mistakes at various points in their lives and with varying degrees of justification. Screwing up—failing to live by one’s highest ideals and values—is part of what makes us human.

There presently exist three recognized conceptualizations of the antisocial construct: antisocial personality disorder (ASPD) as outlined in the Diagnostic and Statistical Manual of Mental Disorders (DSM-5; American Psychiatric Association, 2013), dissocial personality disorder in the International Classification of Diseases (ICD-10; World Health Organization, 1992), and psychopathy as formalized by Hare with the Psychopathy Checklist—Revised (PCL-R; Hare, 2003). A conundrum for therapists is that these conceptualizations are overlapping but not identical, emphasizing different symptom clusters. The DSM-5 emphasizes the overt conduct of the patient through a criteria set that includes criminal behavior, lying, reckless and impulsive behavior, aggression, and irresponsibility in the areas of work and finances. In contrast, the criteria set for dissocial personality disorder is less focused on conduct and includes a mixture of cognitive signs (e.g., a tendency to blame others, an attitude of irresponsibility), affective signs (e.g., callousness, inability to feel guilt, low frustration tolerance), and interpersonal signs (e.g., tendency to form relationships but not maintain them). The signs and symptoms of psychopathy are more complex and are an almost equal blend of the conduct and interpersonal/affective aspects of functioning. The two higher-order factors of the PCL-R reflect this blend. Factor 1, Interpersonal/Affective, includes signs such as superficial charm, pathological lying, manipulation, grandiosity, lack of remorse and empathy, and shallow affect. Factor 2, Lifestyle/Antisocial, includes thrill seeking, impulsivity, irresponsibility, varied criminal activity, and disinhibited behavior (Hare & Neumann, 2008). Psychopathy can be regarded as the most severe of the three disorders. Patients with psychopathy would be expected to also meet criteria for ASPD or dissocial personality disorder, but not everyone diagnosed with ASPD or dissocial personality disorder will have psychopathy (Hare, 1996; Ogloff, 2006). As noted by Ogloff (2006), the distinctions among the three antisocial conceptualizations are such that findings based on one diagnostic group are not necessarily applicable to the others and produce different prevalence rates in justice-involved populations. Adding a further layer of complexity, therapists will encounter patients who possess a mixture of features from all three diagnostic systems rather than a prototypical presentation of any one disorder.

Was this luck, or was it more than that? Proving skill is difficult in venture investing because, as we have seen, it hinges on subjective judgment calls rather than objective or quantifiable metrics. If a distressed-debt hedge fund hires analysts and lawyers to scrutinize a bankrupt firm, it can learn precisely which bond is backed by which piece of collateral, and it can foresee how the bankruptcy judge is likely to rule; its profits are not lucky. Likewise, if an algorithmic hedge fund hires astrophysicists to look for patterns in markets, it may discover statistical signals that are reliably profitable. But when Perkins backed Tandem and Genentech, or when Valentine backed Atari, they could not muster the same certainty. They were investing in human founders with human combinations of brilliance and weakness. They were dealing with products and manufacturing processes that were untested and complex; they faced competitors whose behaviors could not be forecast; they were investing over long horizons. In consequence, quantifiable risks were multiplied by unquantifiable uncertainties; there were known unknowns and unknown unknowns; the bracing unpredictability of life could not be masked by neat financial models. Of course, in this environment, luck played its part. Kleiner Perkins lost money on six of the fourteen investments in its first fund. Its methods were not as fail-safe as Tandem’s computers. But Perkins and Valentine were not merely lucky. Just as Arthur Rock embraced methods and attitudes that put him ahead of ARD and the Small Business Investment Companies in the 1960s, so the leading figures of the 1970s had an edge over their competitors. Perkins and Valentine had been managers at leading Valley companies; they knew how to be hands-on; and their contributions to the success of their portfolio companies were obvious. It was Perkins who brought in the early consultants to eliminate the white-hot risks at Tandem, and Perkins who pressed Swanson to contract Genentech’s research out to existing laboratories. Similarly, it was Valentine who drove Atari to focus on Home Pong and to ally itself with Sears, and Valentine who arranged for Warner Communications to buy the company. Early risk elimination plus stage-by-stage financing worked wonders for all three companies. Skeptical observers have sometimes asked whether venture capitalists create innovation or whether they merely show up for it. In the case of Don Valentine and Tom Perkins, there was not much passive showing up. By force of character and intellect, they stamped their will on their portfolio companies.

Matteo Renzi said, "We have to be united in condemning Russia's behavior." He noted that the European Union is moving to enlarge sanctions on Russia in sectors like "finance, defense and sensitive technologies and dual use goods.

There’s a famous Russian proverb about this type of behavior. One day, a poor villager happens upon a magic talking fish that is ready to grant him a single wish. Overjoyed, the villager weighs his options: “Maybe a castle? Or even better—a thousand bars of gold? Why not a ship to sail the world?” As the villager is about to make his decision, the fish interrupts him to say that there is one important caveat: whatever the villager gets, his neighbor will receive two of the same. Without skipping a beat, the villager says, “In that case, please poke one of my eyes out.” The moral is simple: when it comes to money, Russians will gladly—gleefully, even—sacrifice their own success to screw their neighbor.

Can Money Make You Happy? Can money make you happy? Of course it can! But does it? You can use behavioral finance concepts to spend your money in ways that increase your happiness. Here are four ways to spend your way to happiness:9 (1) Buy experiences, not things. (2) Buy many small things instead of few big ones. (3) Pay now to consume later. (4) Help others.

Three areas, all based on personal choice and personal action, maximize the activity of our naturally occurring self-healing capability. The first is our choice of attitudes and mental influences. When we choose to think, believe, and act from a position of power, refusing to be a victim of circumstances, the healer within is automatically strengthened. When we refuse to live under the influence of worry and doubt, the internal medicine is enriched. The second area of choice is lifestyle: nutrition, exercise, rest, relationships, finances, work, spiritual practice, play, water intake, avoidance of alcohol and cigarettes, and so on. From moment to moment, each of us personally elects whether to enhance or sabotage the healer within through our behaviors and personal choices.

Rather than be fearful and sell out at the worst time or get greedy when the market is way up, investors should control their emotions and not only avoid panic, but embrace the market volatility for what it is: an opportunity and a gift. Suffocate the instincts that want to make you a bad investor and rather embrace the chaos that normally causes them to rise to the surface.

There is ample evidence that confirmation bias permeates throughout investors' decisions. For example, once an investor likes a stock, he is likely to seek out information that validates that stock. In a 2010 study, researchers showed that investors used message boards to seek out information that validated rather than challenged, stocks they owned (Park et al. 2010). If we own a stock, we tend to look for anything that validates our decision to buy it, and to reinforce why we should keep holding it.

dApps are like traditional software applications except they live on a decentralized smart contract platform. The primary benefit of these applications is their permissionlessness and censorship resistance. Anyone can use them, and no single body controls them. A separate but related concept is a decentralized autonomous organization (DAO), which has its rules of operation encoded in smart contracts that determine who can execute what behavior or upgrade. It is common for a DAO to have some kind of governance token, which gives an owner some percentage of the vote on future outcomes.

With gambling or investing, if your gains are quick and easy, you will tend to keep the money in a separate mental account. So, if you subsequently lose it, you won't feel as upset as you'd think if you lost the money you brought to the casino. Yet, they are both pots of currency.

Everyone who liquidates at the bottom of the market is quick to rationalize, ironically, that they decided to prevent further losses.

Timing the market is a biased investor's game.

The motives to sell during a market capitulation are rarely rooted in a long-term plan. If they were, the market would never be oversold.

Timing an unforeseeable event is more likely a stroke of luck than skill.

If you've convinced yourself that a market correction is likely (your belief) to justify holding cash rather than investing (your action), you may be under the influence of cognitive dissonance.

It doesn't matter what you paid for an investment. If it no longer suits your objectives or has poor prospects, you should sell it.

The motivation to break even is so tempting that you'll even consider doing so at greater levels of risk than you'd typically accept. If you've heard the expression "double or nothing," you've seen this bias in action.

It is odd behaviour to ignore smaller denominations when transacting high values since large transactions provide the most obvious opportunity to keep more of your money.

Familiarity bias drags you to the safety of your comfort zone and, in doing so, unwittingly increases your risks by limiting diversification and investment opportunities.

Stocks aren't like a pair of shoes that go on sale but keep the same useful value. The value of stocks are based on their economic prospects, which change constantly.

If you excuse investment concentration by telling yourself that your familiarity with domestic companies or specific sectors helps you understand those investments better, your familiarity bias is the excuse for your familiarity bias.

Your investment choices are distorted through the voice of your experience, and the louder the narrative—the more recent or dramatic—the greater the influence it has over your “independent judgement.

Ironically, investing in many seemingly safe investment options puts conservative investors at the greatest risk of declining purchasing power.

Short-cuts are timesavers for a reason: they omit details that can differentiate a profitable decision from one that you regret.

Like streamers on top of a sailboat indicating wind pattern changes, when long-term rates are lower than short-term rates, it's a telltale that trends are likely changing.

The concepts are simple, but that doesn’t mean the process is easy. It’s not. That’s because money is not just about math; it’s about behavior. Personal finance is only 20 percent head knowledge. The other 80 percent—the bulk of the issue—is behavior. And it’s our behaviors with money that can get us into the biggest trouble or lead us into the biggest successes. Behavior is the key to the whole deal, and we’ll unpack how that plays out through all these different areas as we work through this book.

But astrophysics is a field of precision. It isn’t impacted by the vagaries of human behavior and emotions, like finance is. Business, economics, and investing, are fields of uncertainty, overwhelmingly driven by decisions that can’t easily be explained with clean formulas, like a trip to Pluto can. But we desperately want it to be like a trip to Pluto, because the idea of a NASA engineer being in 99.99998% control of an outcome is beautiful and comforting. It’s so comforting that we’re tempted to tell ourselves stories about how much control we have in other parts of our life, like money.

Rewarding user behavior with increases in supply (inflationary rewards) has become a common practice to encourage actions such as supplying liquidity or using a particular platform. Consequently, many users engage in yield farming, taking actions to seek the highest possible rewards.

I learned that my thoughts create my feelings; my feelings create my behaviors; and eventually my behaviors create my outcomes in relationships, work, finances, and how healthy I am physically and emotionally. If I could separate myself from my thoughts and look at them dispassionately, then I could feel and act in a more consistently happy way over time.

Yet the best argument for the enduring value of the efficient-markets hypothesis comes from the eminent twentieth-century British statistician George Box, who is said to have quipped that “all models are wrong, but some are useful.” The efficient-markets hypothesis may not be entirely correct. After all, markets are shaped by humans, and humans are prone to all sorts of behavioral biases and irrationality. But the hypothesis is at the very least a decent approximation for how markets work—and helps explain just why they have in practice proven so hard to beat. Even Benjamin Graham, the doyen of many investors, later in his career became a de facto believer in the efficient-markets hypothesis.

Initially the common ownership theory was dismissed as a loony idea from ivory-tower economists. After all, the airline industry is infamously bankruptcy-prone and looked like poor evidence of anticompetitive behavior, overt or otherwise. Richard Branson, the billionaire entrepreneur, once joked that the best way to become an aviation millionaire was to be a billionaire and invest in an airline. However, the theory gradually started to garner attention. “Are Index Funds Evil?” was the provocative title of one piece examining the subject in The Atlantic in 2017.18

Moreover, Fama’s thesis—titled “The Behavior of Stock-Market Prices”—corroborated earlier work by the likes of Mandelbrot and Samuelson which argued that markets are close to random, and therefore impossible to predict. As the young economist wrote in the introduction, “The series of price changes has no memory, that is, the past cannot be used to predict the future in any meaningful way.”19

Ross’s “arbitrage pricing theory” and Rosenberg’s “bionic betas” posited that the returns of any financial security are the result of several systematic factors. Although seemingly stating the obvious, this was a seminal moment in the move toward a more vibrant understanding of markets. The eclectic Rosenberg was even put on the cover of Institutional Investor in May 1978, the bald, mustachioed man depicted as a giant meditating guru with flowers in his hair, worshipped by a gathering of besuited portfolio managers. The headline was “Who Is Barr Rosenberg? And What the Hell Is He Talking About?”8 What he was talking about was how academics were beginning to classify stocks according to not just their industry or their geography, but their financial characteristics. And some of these characteristics might actually prove to deliver better long-term returns than the broader stock market. In 1973, Sanjoy Basu, a finance professor at McMaster University in Ontario, published a paper that indicated that companies with low stock prices relative to their earnings did better than the efficient-markets hypothesis would suggest. Essentially, he showed that the value investing principles espoused by Benjamin Graham in the 1930s—which revolved around buying cheap, out-of-favor stocks trading below their intrinsic worth—was a durable investment factor. By systematically buying all cheap stocks, investors could in theory beat the broader market over time. Then Banz showed the same for small caps, another big moment in the evolution of factor investing. Follow-up studies on smaller stocks in Japan and the UK showed similar results, so in 1986 DFA launched dedicated small-cap funds for those two markets as well. In the early 1990s, finance professors Narasimhan Jegadeesh and Sheridan Titman published a paper indicating that simply surfing market momentum—in practice buying stocks that were already bouncing and selling those that were sliding—could also produce market-beating returns.9 The reasons for these apparent anomalies divide academics. Efficient-markets disciples stipulate that they are the compensation investors receive for taking extra risks. Value stocks, for example, are often found in beaten-up, unpopular, and shunned companies, such as boring industrial conglomerates in the middle of the dotcom bubble. While they can underperform for long stretches, eventually their underlying worth shines through and rewards investors who kept the faith. Small stocks do well largely because small companies are more likely to fail than bigger ones. Behavioral economists, on the other hand, argue that factors tend to be the product of our irrational human biases. For example, just like how we buy pricey lottery tickets for the infinitesimal chance of big wins, investors tend to overpay for fast-growing, glamorous stocks, and unfairly shun duller, steadier ones. Smaller stocks do well because we are illogically drawn to names we know well. The momentum factor, on the other hand, works because investors initially underreact to news but overreact in the long run, or often sell winners too quickly and hang on to bad bets for far longer than is advisable.

outcome

Andrei Shleifer writes in his excellent book Inefficient Markets: An Introduction to Behavioral Finance:

With such theories, economists developed a very elaborate toolkit for analyzing markets, measuring the "variance" and "betas" of different securities and classifying investment portfolios by their probability of risk. According to the theory, a fund manager can build an "efficient" portfolio to target a specific return, with a desired level of risk. It is the financial equivalent of alchemy. Want to earn more without risking too much more? Use the modern finance toolkit to alter the mix of volatile and stable stocks, or to change the ratio of stocks, bonds, and cash. Want to reward employees more without paying more? Use the toolkit to devise an employee stock-option program, with a tunable probability that the option grants will be "in the money." Indeed, the Internet bubble, fueled in part by lavish executive stock options, may not have happened without Bachelier and his heirs.

Imagine 100 book bags, each of which contains 1,000 poker chips. Forty-five bags contain 700 black chips and 300 red chips. The other 55 bags contain 300 black chips and 700 red chips. You cannot see inside any of the bags. One of the bags is selected at random by means of a coin toss. Consider the following two questions about the selected book bag. 1. What probability would you assign to the event that the selected bag contains predominantly black chips? 2. Now imagine that 12 chips are drawn, with replacement, from the selected bag. These twelve draws produce 8 blacks and 4 reds. Would you use the new information about the drawing of chips to revise your probability that the selected bag contains predominantly black chips? If so, what new probability would you assign?

One American political figure saw Russia for the growing menace that it was and was willing to call Putin out for his transgressions. During President Obama’s reelection campaign, Mitt Romney warned of a growing Russian strategic threat, highlighting their role as “our number one geopolitical foe.”[208] The response from President Obama, Secretary Clinton, and other Democrats was not to echo his sentiment, but actually to ridicule Romney and support the Russian government. President Obama hurled insults, saying Romney was “stuck in a Cold War mind warp” [209] and in a nationally televised debate mocked the former governor, saying “the 1980s are now calling to ask for their foreign policy back…” [210] When asked to respond to Romney’s comment, Secretary Clinton refused to rebuke the over-the-top and false Obama campaign attacks. Instead, she delivered a message that echoed campaign talking points arguing that skepticism of Russia was outdated: “I think it’s somewhat dated to be looking backwards,” she said, adding, “In many of the areas where we are working to solve problems, Russia has been an ally.”[211] A month after Secretary Clinton’s statement on Romney, Putin rejected Obama’s calls for a landmark summit.[212] He didn’t seem to share the secretary’s view that the two countries were working together. It was ironic that while Obama and Clinton were saying Romney was in a “Cold War mind warp,”[213] the Russian leader was waging a virulent, anti-America “election campaign” (that’s if you can call what they did in Russia an “election”). In fact, if anyone was in a Cold War mind warp, it was Putin, and his behavior demonstrated just how right Romney was about Russia’s intentions. “Putin has helped stoke anti-Americanism as part of his campaign emphasizing a strong Russia,” Reuters reported. “He has warned the West not to interfere in Syria or Iran, and accused the United States of ‘political engineering’ around the world.”[214] And his invective was aimed not just at the United States. He singled out Secretary Clinton for verbal assault. Putin unleashed the assault Nov. 27 [2011] in a nationally televised address as he accepted the presidential nomination, suggesting that the independent election monitor Golos, which gets financing from the United States and Europe, was a U.S. vehicle for influencing the elections here. Since then, Golos has been turned out of its Moscow office and its Samara branch has come under tax investigation. Duma deputies are considering banning all foreign grants to Russian organizations. Then Putin accused U.S. Secretary of State Hillary Rodham Clinton of sending a signal to demonstrators to begin protesting the fairness of the Dec. 4 parliamentary elections.[215] [Emphasis added.] Despite all the evidence that the Russians had no interest in working with the U.S., President Obama and Secretary Clinton seemed to believe that we were just a Putin and Obama election victory away from making progress. In March 2012, President Obama was caught on a live microphone making a private pledge of flexibility on missile defense “after my election” to Dmitry Medvedev.[216] The episode lent credence to the notion that while the administration’s public unilateral concessions were bad enough, it might have been giving away even more in private. So it shouldn’t have been a surprise that Putin didn’t abandon his anti-American attitudes after he won the presidential “election.” In the last few weeks of Clinton’s tenure as Secretary of State, Putin signed a law banning American adoption of Russian children,[217] in a move that could be seen as nothing less than a slap in the face to the United States. Russia had been one of the leading sources of children for U.S. adoptions.[218] This disservice to Russian orphans in need of a home was the final offensive act in a long trail of human rights abuses for which Secretary Clinton failed to hold Russia accountable.

Bizarre and Surprising Insights—Consumer Behavior Insight Organization Suggested Explanation7 Guys literally drool over sports cars. Male college student subjects produce measurably more saliva when presented with images of sports cars or money. Northwestern University Kellogg School of Management Consumer impulses are physiological cousins of hunger. If you buy diapers, you are more likely to also buy beer. A pharmacy chain found this across 90 days of evening shopping across dozens of outlets (urban myth to some, but based on reported results). Osco Drug Daddy needs a beer. Dolls and candy bars. Sixty percent of customers who buy a Barbie doll buy one of three types of candy bars. Walmart Kids come along for errands. Pop-Tarts before a hurricane. Prehurricane, Strawberry Pop-Tart sales increased about sevenfold. Walmart In preparation before an act of nature, people stock up on comfort or nonperishable foods. Staplers reveal hires. The purchase of a stapler often accompanies the purchase of paper, waste baskets, scissors, paper clips, folders, and so on. A large retailer Stapler purchases are often a part of a complete office kit for a new employee. Higher crime, more Uber rides. In San Francisco, the areas with the most prostitution, alcohol, theft, and burglary are most positively correlated with Uber trips. Uber “We hypothesized that crime should be a proxy for nonresidential population.…Uber riders are not causing more crime. Right, guys?” Mac users book more expensive hotels. Orbitz users on an Apple Mac spend up to 30 percent more than Windows users when booking a hotel reservation. Orbitz applies this insight, altering displayed options according to your operating system. Orbitz Macs are often more expensive than Windows computers, so Mac users may on average have greater financial resources. Your inclination to buy varies by time of day. For retail websites, the peak is 8:00 PM; for dating, late at night; for finance, around 1:00 PM; for travel, just after 10:00 AM. This is not the amount of website traffic, but the propensity to buy of those who are already on the website. Survey of websites The impetus to complete certain kinds of transactions is higher during certain times of day. Your e-mail address reveals your level of commitment. Customers who register for a free account with an Earthlink.com e-mail address are almost five times more likely to convert to a paid, premium-level membership than those with a Hotmail.com e-mail address. An online dating website Disclosing permanent or primary e-mail accounts reveals a longer-term intention. Banner ads affect you more than you think. Although you may feel you've learned to ignore them, people who see a merchant's banner ad are 61 percent more likely to subsequently perform a related search, and this drives a 249 percent increase in clicks on the merchant's paid textual ads in the search results. Yahoo! Advertising exerts a subconscious effect. Companies win by not prompting customers to think. Contacting actively engaged customers can backfire—direct mailing financial service customers who have already opened several accounts decreases the chances they will open more accounts (more details in Chapter 7).

Thinks about the three-mild, slow, and wild-as if the realm of chance were a world in its own right, with its own peculiar laws of physics. Mild randomness, then, is like the solid phase of matter: low energies, stable structures, well-defined volume. It stays where you put it. Wild randomness is like the gaseous phase of matter: high energies, no structure, no volume. No telling what it can do, where it will go. Slow randomness is intermediate between the others, the liquid state. I first proposed some of my views of chance in 1964 in Jerusalem, at an International Congress of Logic and Philosophy of Science. Since then, I have much expanded the theory and shown it to be critical to understanding financial markets in their proper light. As will be seen, the standard theories of finance assume the easier, mild form of randomness. Overwhelming evidence shows markets are far wilder, and scarier, than that.

He tried his hand at doing some research on the psychology of the stock market, but grew frustrated with the reactions he got from the referees at mainstream finance and economics journals and eventually abandoned the research program.

Behavioral economics is about working constructively with the standard economic model to get a better understanding of economic behavior. The objective is definitely not to criticize the standard economic model, or accentuate the negatives. Testing the standard model is a means to an end, and that end is to understand economic behavior as best we can.

Curbing the financial sector. Since so much of the increase in inequality is associated with the excesses of the financial sector, it is a natural place to begin a reform program. Dodd-Frank is a start, but only a start. Here are six further reforms that are urgent: (a) Curb excessive risk taking and the too-big-to-fail and too-interconnected-to-fail financial institutions; they’re a lethal combination that has led to the repeated bailouts that have marked the last thirty years. Restrictions on leverage and liquidity are key, for the banks somehow believe that they can create resources out of thin air by the magic of leverage. It can’t be done. What they create is risk and volatility.2 (b) Make banks more transparent, especially in their treatment of over-the-counter derivatives, which should be much more tightly restricted and should not be underwritten by government-insured financial institutions. Taxpayers should not be backing up these risky products, no matter whether we think of them as insurance, gambling instruments, or, as Warren Buffett put it, financial weapons of mass destruction.3 (c) Make the banks and credit card companies more competitive and ensure that they act competitively. We have the technology to create an efficient electronics payment mechanism for the twenty-first century, but we have a banking system that is determined to maintain a credit and debit card system that not only exploits consumers but imposes large fees on merchants for every transaction. (d) Make it more difficult for banks to engage in predatory lending and abusive credit card practices, including by putting stricter limits on usury (excessively high interest rates). (e) Curb the bonuses that encourage excessive risk taking and shortsighted behavior. (f) Close down the offshore banking centers (and their onshore counterparts) that have been so successful both at circumventing regulations and at promoting tax evasion and avoidance. There is no good reason that so much finance goes on in the Cayman Islands; there is nothing about it or its climate that makes it so conducive to banking. It exists for one reason only: circumvention. Many

When I Need to Be Delivered from Bad Habits For what I am doing, I do not understand. For what I will to do, that I do not practice; but what I hate, that I do…But now, it is no longer I who do it, but sin that dwells in me. ROMANS 7:15,17 AT ONE TIME OR ANOTHER in our lives, we women struggle with some kind of habit or behavior we don’t like, don’t want, and don’t know how to overcome. We usually know when we are doing something that is not good for our body, health, finances, or marriage, because after we do it we feel guilty to the point of self-flagellating regret. We beat ourselves up all day long about it. In the verses above, Paul describes our situation when we don’t do the things we know we should, and we do the things we know we shouldn’t. It happens when sin gets control over us, or our flesh cries loudly for what it wants, or the enemy takes advantage of our weakness and we don’t resist him. If we attempt to handle this on our own without God’s help, even if we do well for a time, we may eventually fall back into the same bad habit. Paul, however, gives us reason to hope, because a few verses later he asks, “Who will deliver me from this?” And he answers his own question saying, “Jesus Christ our Lord” (Romans 7:24-25). Jesus can set us free from all that is destructive in our lives, including our tendency toward any bad habits. The best news is that even though our own strength fails, the power of the Holy Spirit in us never fails. Ask God to set you free from any bad habit or craving that you know is not God’s will for your life. Thank Him that because of Jesus, you don’t have to give in to the dictates of your own flesh. Jesus has not only set you free, He can also help you walk in the freedom He has given you. My Prayer to God LORD, I pray You would expose any bad habits I have to Your light. Burn them out of my life. For the habit I struggle with most that I would like to see broken, help me to gain control over it so it cannot control me anymore. Show me how to rise up in the power of Your Spirit and resist this weakness head on. Take away whatever is in me that draws me to do anything that is not Your best for my life. Fill what is missing in me with more of You so that I stop trying to fill any empty place in my life with something that turns into an undesirable habit. Destroy the conflict in me that causes me to do what I don’t want to do and not do what I do want to do. Enable me to be strong and not give in to weakness. I release to You all my desires and needs, and recognize that my true need will always be for more of You. Thank You, Jesus, for setting me free from captivity to sin and delivering me from all that is not good for me, and therefore not good for my husband and children. Protect me from anything that would drive me back into old habits that only destroy my peace, health, security, and future. Lift me above my weaknesses so that Your strength will be clearly manifested in me. In Jesus’ name I pray.

While King Ahasuerus has been rotating his guests during these six months, these seven princes have most likely been with him the whole time as well. To Ahasuerus, it may have seemed that these were the right men to go to for advice, but Ahasuerus is not at his sharpest after these six months of celebrating. We can only imagine that these advisors are as bored and as drunk as King Ahasuerus, even though earlier in this chapter (verse 8) the historian makes a point of telling us that the guests were not required to drink. These men may have been “partying” right along with Ahasuerus for these six months, and their judgement may be hindered by the atmosphere as much as the king’s judgement has been hindered. On a more personal note, can you think of any time when you sought out the wrong person for advice or counsel? I sure can! You would not seek advice on your finances from someone who filed bankruptcy yesterday, nor would you seek advice on marriage from a child. When you need wise counsel, you need to find someone who has experienced victory in the same situation in which you are experiencing difficulty. Of course, when I catch myself looking to the wrong people for advice, many times I realize something: I am not really looking for advice, I am looking for support. Sometimes we seek out people that we expect will be sympathetic to our cause. Ahasuerus may have done this very thing in choosing these men. Maybe Ahasuerus has already determined what he wants to do with Vashti, and now he is looking for validation. Big mistake! Here is a lesson we can take from Ahasuerus: there are situations in our lives when we should seek an opinion from an objective party. The Bible encourages us to seek wise counsel. We should use wisdom and choose someone with more experience and wisdom than we have ourselves. If Ahasuerus wanted approval, he found it in these seven advisors. If he merely wanted a decisive opinion on what course of action to take, he has found that. And Memucan answered before the king and the princes: “Queen Vashti has not only wronged the king, but also all the princes, and all the people who are in all the provinces of King Ahasuerus. For the queen’s behavior will become known to all women, so that they will despise their husbands in their eyes, when they report, ‘King Ahasuerus commanded Queen Vashti to be brought in before him, but she did not come.’ Esther 1:16-17 When Ahasuerus asks for advice, one of the advisors speaks out quickly. Memucan answers Ahasuerus, and apparently he has taken Vashti’s refusal pretty personally himself. Perhaps Memucan’s wife is among those women that Vashti is entertaining. Memucan exaggerates this situation to make it seem like a very serious infraction indeed, and he wants the king to see it his way. Memucan says, “Queen Vashti has not only wronged the king, but also all the princes, and all the people who are in all the provinces” (v. 16). He suggests that the queen’s refusal will make all women despise their husbands (v. 17). … Is Memucan taking this situation a little far? This very day the noble ladies of Persia and Media will say to all the king’s officials that they have heard of the behavior of the queen. Thus there will be excessive contempt and wrath. If it pleases the king, let a royal decree go out from him, and let it be recorded in the laws of the Persians and the Medes, so that it will not be altered, that Vashti shall come no more before King Ahasuerus; and let the king give her royal position to

And while those survival instincts are quite useful in general, when translated into a modern world, and especially a modern investment world, they make us prone to all sorts of errors. Think of chasing momentum all too often in the hope that it will continue and running from falling markets just as they start to turn. What works for survival in the African jungles is not as productive in the jungles of world finance.

Yet it was not until I was 28 years old, starting my psychiatric residency, that I learned I was not my mind and I did not have to believe every stupid thought that came into my awareness. I learned that my thoughts create my feelings; my feelings create my behaviors; and eventually my behaviors create my outcomes in relationships, work, finances, and

Engineers can determine the cause of a bridge collapse because there’s agreement that if a certain amount of force is applied to a certain area, that area will break. Physics isn’t controversial. It’s guided by laws. Finance is different. It’s guided by people’s behaviors. And how I behave might make sense to me but look crazy to you.

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I’ve seen a lot of folks who grew up in environments of poverty, scarcity, and unpredictability who are traumatized but who also strongly identify as people who are traumatized and victimized. Beyond the actual external obstacles traumatized people face, there is another layer of internal obstacles when someone strongly identifies as traumatized and victimized, but wants financial stability, sometimes the behaviors that get that person to stability are in conflict with the traumatized person‘s identity. This conflict, like so many others, results in the battle between who they believe they are and how they behave. To reconcile the conflict, they can heal their trauma and work towards finding ways to identify less with their trauma or behave in a way that confirms their identity of being victimized, which again often looks like self-sabotage.

Learn about the subject of behavioral finance. Jason Zweig’s book, Your Money and Your Brain (Simon & Schuster, 2007), will teach you to be a better investor. The logical side of your brain may recognize the street signs of simplicity, but the emotional side will surely steer you off course, or off a cliff. Unfortunately, it’s hard to know which side of your brain is in the driver’s seat when you are making a decision.

You are not your mind. Your ability to separate from, manage, and not be a victim of your mind is essential to feeling happy. Yet it was not until I was 28 years old, starting my psychiatric residency, that I learned I was not my mind and I did not have to believe every stupid thought that came into my awareness. I learned that my thoughts create my feelings; my feelings create my behaviors; and eventually my behaviors create my outcomes in relationships, work, finances, and how healthy I am physically and emotionally.

The Most Important Quality for an Investor is Temperament, not Intellect... You Need a Temperament that Neither Derives Great Pleasure from Being with The Crowd or Against the Crowd. -Warren Buffett

intend to destroy their relationships, hurt loved ones, or ignore their kids, or ruin their careers, or mangle their finances, or get arrested, or whatever. Yet they often end up in these very circumstances, arriving there incrementally as their denial escalates. Over time, they grow less able (and less willing) to see the connection between their increasing personal problems and their escalating addictive behaviors. Often

The Most Important Quality for an Investor is Temperament, not Intellect... You Need a Temperament that Neither Derives Great Pleasure from Being with The Crowd or Against the Crowd. -Warren Buffett

Then I remembered why he would do this: because it is the Russian thing to do. There’s a famous Russian proverb about this type of behavior. One day, a poor villager happens upon a magic talking fish that is ready to

Disruptors do have an important role within any company or industry that is dependent on evolutionary change to stay relevant to the society it serves. But was it possible to get the good that comes from disruptors without the accompanying negative behavior?

People tend to weigh their most recent experiences more than the affairs of the past.

Many times these tendencies are unconscious, so we are not aware of them unless we continue to repeat them until the pain becomes intolerable and we can no longer refuse to face them. Then we recognize the pattern and realize, “Hey, I’m doing the same thing Mom always did to Dad.” Or, “That’s why Dad always worked late: so he didn’t have to face decisions about the finances at home.” Recognition that our patterns relate to family issues is the first step in healing dysfunctional behaviors in our own lives.

Our dysfunctional culture sends mixed signals about manhood. The world of sports tells me that authentic masculinity is linked to athleticism, physical strength, and winning the game. In short, muscles make the man. The world of finance suggests that my worth is directly tied to the size of my bank account, the square-footage of my house, the brand of watch I wear, and the make and model of car I drive. In other words, money makes the man. Then Hollywood tells me that real manhood is measured by how long I can last in bed and how many women I’ve had sex with. The clear message is: a penis makes a man. To add to that chorus, popular music today tells young urban men that their masculine value is boosted if they act tough, beat up women, use profanity, abuse drugs, outsmart the police, and drink as much alcohol as possible. If they do all these things, someone on the street will reward them by saying, “You da man!” So these guys grow up thinking that bad behavior makes a man, especially if it involves impregnating as many women as possible—and leaving those women with black eyes, bruises, and broken hearts in the process.

It was the German powerhouse Deutsche Bank AG, not my fictitious RhineBank, that financed the construction of the extermination camp at Auschwitz and the nearby factory that manufactured Zyklon B pellets. And it was Deutsche Bank that earned millions of Nazi reichsmarks through the Aryanization of Jewish-owned businesses. Deutsche Bank also incurred massive multibillion-dollar fines for helping rogue nations such as Iran and Syria evade US economic sanctions; for manipulating the London interbank lending rate; for selling toxic mortgage-backed securities to unwitting investors; and for laundering untold billions’ worth of tainted Russian assets through its so-called Russian Laundromat. In 2007 and 2008, Deutsche Bank extended an unsecured $1 billion line of credit to VTB Bank, a Kremlin-controlled lender that financed the Russian intelligence services and granted cover jobs to Russian intelligence officers operating abroad. Which meant that Germany’s biggest lender, knowingly or unknowingly, was a silent partner in Vladimir Putin’s war against the West and liberal democracy. Increasingly, that war is being waged by Putin’s wealthy cronies and by privately owned companies like the Wagner Group and the Internet Research Agency, the St. Petersburg troll factory that allegedly meddled in the 2016 US presidential election. The IRA was one of three Russian companies named in a sprawling indictment handed down by the Justice Department in February 2018 that detailed the scope and sophistication of the Russian interference. According to special counsel Robert S. Mueller III, the Russian cyber operatives stole the identities of American citizens, posed as political and religious activists on social media, and used divisive issues such as race and immigration to inflame an already divided electorate—all in support of their preferred candidate, the reality television star and real estate developer Donald Trump. Russian operatives even traveled to the United States to gather intelligence. They focused their efforts on key battleground states and, remarkably, covertly coordinated with members of the Trump campaign in August 2016 to organize rallies in Florida. The Russian interference also included a hack of the Democratic National Committee that resulted in a politically devastating leak of thousands of emails that threw the Democratic convention in Philadelphia into turmoil. In his final report, released in redacted form in April 2019, Robert Mueller said that Moscow’s efforts were part of a “sweeping and systematic” campaign to assist Donald Trump and weaken his Democratic rival, Hillary Clinton. Mueller was unable to establish a chargeable criminal conspiracy between the Trump campaign and the Russian government, though the report noted that key witnesses used encrypted communications, engaged in obstructive behavior, gave false or misleading testimony, or chose not to testify at all. Perhaps most damning was the special counsel’s conclusion that the Trump campaign “expected it would benefit electorally from the information stolen and released through Russian efforts.

During a UCLA conference, The Market Debate: A Break from Tradition, after Haugen delivered a paper on market inefficiency, he reported that Eugene Fama, father of the EMH and future co-recipient of the 2013 Nobel Prize in Economics, “…pointed to me in the audience and called me a criminal. He then said that he believed that GOD knew that the stock market was efficient. He added that the closer one came to behavioral finance, the hotter one could feel the fires of Hell on one’s feet.

But astrophysics is a field of precision. It isn’t impacted by the vagaries of human behavior and emotions, like finance is. Business, economics, and investing, are fields of uncertainty, overwhelmingly driven by decisions that can’t easily be explained with clean formulas, like a trip to Pluto can. But we desperately want it to be like a trip to Pluto, because the idea of a NASA engineer being in 99.99998% control of an outcome is beautiful and comforting.

It is psychotic and hateful behavior. But such behaviour is typical in many war zones. Cartel thugs have gone beyond the pale because they are completely immersed in a violent conflict, living like soldiers in the trenches. Imagine the life of Zetas thugs in the war-torn northeast of Mexico, fighting daily with soldiers and rival gangs, moving from safe house to safe house, completely divorced from the reality of normal citizens. In these ghastly conditions they commit atrocities that the world finds so hard to comprehend. For many of these cartel soldiers on the front line, war and insurgency have become their central mission. While thugs have traditionally talked about fighting over drug smuggling, now many are talking about smuggling drugs to finance their war.

Children are like sponges, absorbing their parents' attitudes and behaviors towards money. It's crucial for parents to be mindful of their financial actions and lead by example.