This week’s top reads are primarily focused on the role of behavioral economics in our financial lives. In the Personal Finance section, David Gal dives into the reasons the field of behavioral economics has become so popular, Robin Powell interviews Greg Davies on overoptimism and overconfidence and their impact on decisions made by investors, and Carl Richards shares his four-step program for avoiding confirmation bias.

In the Personal Interest section, Harvard Business Review shares findings on why CEOs make time for hobbies despite their busy schedules, and James Clear discusses whether luck or hard work determines our success.

For more articles like this, check out Raghav’s two previous Top Reads posts here and here.

Personal Finance

Why Is Behavioral Economics So Popular?

The field of behavioral economics has gained recognition and become more readily used in recent years. From popular best-selling books and blockbuster movies, to finance and policy making, the concepts of nudging, framing bias and the endowment effect are apparent. In the finance world, behavioral economics can help us to better understand and predict how we make important financial decisions.

The popularity of such low-cost psychological interventions, or “nudges,” under the label of behavioral economics is in part a triumph of marketing. It reflects the widespread perception that behavioral economics combines the cleverness and fun of pop psychology with the rigor and relevance of economics.

In this article, David Gal, professor of marketing, details an experiment on loss aversion, explains how advertisers use this concept to sell product and discusses the influence of behavioral economics on our decisions at home when we are presented with information on “the average household.” To read the full article, click here.

Overoptimism and Overconfidence in Investing

Author Robin Powell interviews Greg Davies, head of Behavioral Finance at Oxford Risk, on overoptimism and overconfidence – two of the most common problems encountered by investors. Davies answers important questions on the topic, including the severity of the problem for investors, how the media plays on these concepts, how we should react when we read tips shared by news sources, results from a study on pigeons, and how that relates to our market decisions. To read the full article, click here.

How to Protect Against Confirmation Bias

Confirmation bias (when you believe a certain idea or concept to be true and only see evidence that confirms the belief but ignore evidence that goes against our belief) is ingrained in us and is difficult to avoid. In this article, Carl Richards shares how to circumvent confirmation bias with his Confirmation Bias Prevention Program – a simple four-step program that we can apply to understand other points of view.

Guarding against confirmation bias is hard. It’s work. It may cause you extra effort, and it may damage your ego.

But that’s a small price to pay for the peace of mind that comes from knowing you have carefully considered alternative viewpoints, and the decisions you’ve made are backed up with actual research.

To read the full article click here.

Personal Interest

Why Some CEOs Spend So Much Time on Hobbies

Many CEOs are known to have hobbies or “serious leisure interests” that they spend considerable time engaging in outside of work. A number of studies have been conducted to determine whether CEOs with hobbies make better leaders and innovators, or whether their engagement in these activities could be detrimental. Researchers conducted a study on the topic, published in Harvard Business Review, looking at why leaders make time for hobbies when they have busy lives, hobbies aside. In this article, they share the common themes they uncovered from their research, and whether CEOs feel that their hobbies help them with their job performance. For their findings, click here.

Luck vs. Hard Work

In this article, James Clear discusses the role of luck in success, starting with wisdom from Warren Buffett, who says that the circumstances of our birth will determine more about us (and the course our lives will take) than anything else ever will. The multi billionaire has been adamant that his success can largely be attributed to luck.

The second example Clear talks about is the work of scientist Tu Youyou, the head of a research group in Beijing. Youyou faced adversity time and again as she worked to create a medication that would be given to soldiers to cure them of malaria. Through the tribulations and trials, Youyou was so committed to her work and finding a cure that she decided to become the first human subject and ultimately, after much bad luck, had her breakthrough, saving millions of lives.

So what is greater: hard work or luck? Clear breaks it down for us here.


GuideVine

GuideVine

From time to time, the team at GuideVine highlights certain topical videos and content from expert financial advisors. We find these helpful and hope you will to for your managing personal finances. To learn more, you can view and find potential advisors through our advisor matching service and listings, ask one-on-one personal finance questions to these experts, and view “How to” videos on our YouTube channel (https://www.youtube.com/channel/UCJopbGDSgc1szGZaoUPqTrA).