“Henry, the investor, wasn’t keen on accepting a stockbroker’s invitation to share a taxi – a sales pitch for a whole mile, he thought. He was wrong. The stockbroker neither mentioned his firm nor any stock. He merely unknotted his tie and stuffed it in his jacket pocket. “It’s not my favourite,” he said, “but my son chose it for my birthday, so, I have to wear it.” He continued: “My boy’s ten. That’s about the age when sons suddenly realise their fathers are not superhuman after all. Mine thinks I’m a loser.” One mile later, Henry had decided that he quite liked this stockbroker.” – The Trust Mandate: The behavioural science behind how asset managers REALLY win and keep clients. Brodie & Harnack, 2018)
“Can you explain behavioural finance to my 14-year-old daughter?”
As the girl’s father was a finance professor, I had the impression that he might already have tried it unsuccessfully himself. Undeterred, though, I turned to the unenthusiastic teen and asked her to imagine a prize draw with a £100 reward for the lucky person whose ticket number is randomly drawn from a basket.
There are only 100 tickets,” I explained, “so, arguably, each entry ticket is ‘worth’ £1.” She nodded in agreement. “Now suppose I offer you the chance to buy one of those tickets for 90p. Would you take it?” She nodded again, smiling. Was this going to be easier than she thought? Continue reading
Despite being an Englishman, former soccer player and manager, Jack Charlton, is immensely popular in the Republic of Ireland. As manager of the national team, he led the soccer-mad nation to its first World Cup competition in 1990. He has been awarded one of the Republic’s highest honours, an honorary Irish citizenship. Cork airport even has a life-sized statue of him indulging his passion for fishing. When he goes on fishing trips to the Republic, he has been known to pay his expenses by cheque. The payees, so delighted to have the autograph of their sporting hero, sometimes never bank them. The value and, therefore, the demand for this asset can be greater than suggested by the face-value because of the signature on it. Continue reading
I had the honour of attending a university graduation ceremony recently. It was a grand affair, full of pomp and tradition. But I have to admit it was little boring. Each one of almost 300 graduates was invited to go up on stage to receive their degree and to shake hands with the Chancellor and other senior members of the teaching staff. Yet, I was only interested in seeing one degree awarded. To pass the time, I decided to play a game of First-Class-Honours Bingo. Continue reading
“Someday, we’ll look back at this and laugh.”
This expression is reserved for people who, because they are suffering some awful physical or social pain, can find no reason to laugh right now. They have either blundered into made a costly mistake, collided with an avoidable obstacle, or stumbled into a social faux-pas. Yet, they are convinced that in a foreseeable future, their recollection of the moment will allow them a comic interlude. Continue reading
A few years ago a NY hedge fund boss asked me a strange question. I thought it strange because I believe he knew in advance how I would answer, and how he would respond to my answer. And both of us knew that nothing either he or I said would make a blind bit of difference to how hedge fund bosses ran their businesses. The question was: What do you think of individual performance bonuses? Continue reading
The Lakeview Resort is one of Kerala’s loftiest hotels, not only because it is situated some three thousand metres above sea level, but because it is one of the few resorts to have qualified for the coveted five-star rating. The residence is situated in the middle of endless acres of manicured Indian tea plantations and overlooks a picturesque valley and the famous lake that inspired its name. Since the days of English colonisation, when the station was established, visitors have flocked there simply to be able to gaze eastwards at dawn as the sun rises between the hill peaks that separate Kerala from the neighbouring state of Tamil Nadu. The dawn mist acts as a prism, throwing the blaze of colours progressively from the sky, down onto the lush carpet of tea bushes and finally scintillating across the cool waters of the lake. The Lakeview is also a hotbed of behavioural economics. Continue reading
Variations of the old chestnut – trust takes years to build but can be destroyed in seconds – have been around for decades. So it might come as a surprise to learn that there is no scientific evidence to support it. Indeed, science has revealed that trust is not something to be built and destroyed at all — trust is two things to be built and destroyed. Continue reading
One much-discussed indication of a firm’s good governance is hiring and promotions free of nepotism[i], cronyism or any other form of favouritism. Yet, despite the growing importance stakeholders attach to the ‘G’ in ‘ESG’, many organisations, both public and private, struggle to change their ways. Evidence remains of advancement based on family, nationality, language, politics, religion, alma mater and, of course, gender and ethnicity.
The consequences of unfair patronage for the subsequent performance of the patron and their protégés are varied, and (annoyingly) not always negative. However, the impact on everyone else in the organisation, is unambiguously bad.
In their 90’s hedonic anthem, Digital Underground invited party revellers to ‘doowutchyalike’. Yeah. Doing just what we like is probably the purest form of satisfaction. So, if our goal is to maximise the collective satisfaction of a population, we ought to distribute the limited resources so that as many as people as possible get as much of the things they like as possible.
The problem is that it is difficult to discover what people like without asking them individually. What people want, in contrast, is immediately revealed in their purchases. Continue reading