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On holding losers and selling winners: our emotional brains and the disposition effects

I am delighted to introduce a guest blog by Dr Daniel Richards about some research we collaborated on. The disposition effect describes a bias that causes investors to be more willing to sell investments that have risen in in value than those that have fallen in value. Our research shows that investors who rely less on emotions and intuition and investors who manage their emotions more effectively are less likely to show this investment bias. Continue reading On holding losers and selling winners: our emotional brains and the disposition effects

Different Minds: why we need human capabilities and machine intelligence*

“There have been great societies that did not use the wheel, but there have been no societies that did not tell stories.” —Ursula K. LeGuin To listen to some scholars of decision-making, it is a great wonder that humans have … Continue reading Different Minds: why we need human capabilities and machine intelligence*

Anxiety, adrenaline and automation

I am delighted to introduce a guest blog by Kevin Rodgers, formerly global head of foreign exchange at Deutsche Bank, with an impressive career in trading. Kevin is also the author of a great new book which charts the major changes in investment banking ‘Why aren’t they shouting?’, not to mention a pretty good opera singer.

Mark Fenton-O’Creevy

kevinRodgersMy first anxiety dreams came to me within a couple of weeks of starting my career on a trading floor and were about an almost laughably trivial worry – whether I could operate the bank’s pricing software. It was 1990, I was at Merrill Lynch and, fresh out of business school, my job as a junior options trader in the bank’s Foreign Exchange (FX) trading team meant making prices using a tool called FENICS. Replete with knowledge gleaned from business school finance classes, I understood what I was doing but the physical task of typing in the pricing parameters was rather tricky: I was often doing so one-handed (while cradling a phone with the other), and always under time pressure in a ringing cacophony of noise. My dreams took an increasingly familiar pattern: I had an important price to make; the market was moving but I simply couldn’t type the numbers into the right places on the screen; the client’s sales contact was shouting at me to hurry up with increasing urgency and volume. Then I’d wake up with a sudden start in the darkness. Continue reading “Anxiety, adrenaline and automation”

‘The heart has its reasons’: emotions and cognition in the world of finance

Let’s call him James, a trader in a City investment bank; young, smartly dressed, confident, and a little impatient. He sat across from me in the interview:

It’s really important to stay cool. For myself, I can say that I really don’t have much emotion while I trade”.

Half an hour later, as he relaxed a little, the façade had started to crack:

Actually the pressure can be horrendous, a trade goes badly wrong, you are staring into black hole, frozen, knowing you should get out but just hoping the market will turn . . I rushed off the desk and threw up in the toilet – I was terrified”.

Continue reading “‘The heart has its reasons’: emotions and cognition in the world of finance”

On fund-managers, rats and hermit crabs: reversion to familiar habits under stress

Hermit crabs rely on acquiring discarded shells for their protection and are constantly on the look-out for better shells. However, faced with environmental stress they prefer to stick with their old shell, however unsuitable, than risk moving to a new … Continue reading On fund-managers, rats and hermit crabs: reversion to familiar habits under stress