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

‘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