Investing Psychology: The Effects of Behavioral Finance on Investment Choice and Bias, + Website by Tim Richards

Author:Tim Richards [Tim Richards]
Language: eng
Format: epub
Tags: Business, Personal & Professional Development
Publisher: John Wiley & Sons
Published: 2014-04-20T21:00:00+00:00

LESSON 6

Don't simply accept the general idea that we should be focusing on making money regardless of the consequences. This leads to extreme short-term thinking, tempts executives to game the system, and puts us in competition with organizations we can't hope to outperform. We're here to make money, but on our terms, not other peoples'.

YOU'VE BEEN FRAMED

And so we come to the odd, but infinitely powerful topic of framing. If you still have any faint residue of hope that you're an independent individual capable of insightfully overcoming your biases then ready yourself to abandon them now. Framing is how politicians bend us to their wills, how lovers overcome our objections, and how children get their way. We don't lose our jobs anymore; we experience career upgrading or are right sized. At other times we're redeployed, reorganized, displaced, or, startlingly, experience career upgrading. We're being framed, to fit with a general approach towards moral disengagement.

The idea of framing comes out of the work of the twentieth century sociologist Erving Goffman, who used the metaphor of a stage and drama for our various roles: as a parent, a partner, a child, an employee, an employer … the roles we play are infinite, while we are not.16 The way we present ourselves depends upon the situation and the situation frames us through our interaction with others. And this isn't something we can avoid doing because we have to frame situations in order to give ourselves the social context within which we operate; all of that unconscious processing that goes on below the surface that we're rarely aware of but without which life becomes nearly impossible.

The way we look at things colors our perceptions.

The idea of framing has been popularized by the cognitive linguist George Lakoff, mainly in relation to politics.17 He's studied the way in which politicians frame situations to create an environment that's conducive to their own ambitions and ideologies. They manipulate frames in order to change our perspective—remember that the U.S. Army wasn't engaged in a long-term occupation of Iraq but was involved in a short-term “surge.”

In particular, Lakoff proposes that Wall Street frames itself in a particular way: self-interest is always right, we are individually responsible for our actions but not for their social consequences, and success defines moral authority—by definition if you're successful you must be doing something right—and these principles are ones we should live with in daily life, not just in our financial dealings.18 Of course, this is not the only way of framing yourself, but it is one that is commonly propounded. And, of course, from this comes the mantra of short-term earnings maximization and the moral disengagement of shareholders, with all the problems that this brings.

In terms of actual investing there's striking evidence that framing has deep consequences for individuals.19 Think about this:

A: You've found the calculator you want in a local store. It costs $15. However, a bit of judicious Internet surfing shows that you can purchase the same calculator for $10 in a store that's a 15-minute drive away.

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