Money for Nothing by John Gillespie & David Zweig

Author:John Gillespie & David Zweig [Gillespie, John & Zweig, David]
Language: eng
Format: epub
Published: 2010-12-14T16:00:00+00:00

One researcher even went so far as to suggest that steroid feedback loops may contribute to market waves. It is surely curious to think of men’s hormones washing around the world and roiling stock exchanges. (The economists have a world-class term for this financial condition: autoregressive conditional heteroskedasticity.)

NEUROCHEMICALS ARE NOT, by any means, the only forces distorting decision making. Even when the pituitary gland is behaving itself, we often don’t think straight. Thinking has itself been found to be prone to abundant systematic errors, most often called cognitive biases, and many of them, undoubtedly, exercise effects on the decisions of CEOs and boards. Some of this research was pioneered by two psychologists, Daniel Kahneman and Amos Tversky, under the heading of “prospect theory.” Thanks to the great insight their findings brought to the understanding of business and economics, Kahneman was awarded the Nobel Prize in Economics in 2002. (Tversky had died by then.)

The following experiment illustrates the sort of distortion in thinking that Kahneman and Tversky discovered:

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