Proof that losing money really is scary:
The fear of losing money can be similar to the fear of physical pain, according to a study of brain scan images.
The finding could potentially shed light on why people who make high risk financial decisions, such as stock market players, sometimes develop anxiety disorders, says Mauricio Delgado at Rutgers University in Newark, New Jersey, US.
More on his study here.
During the 2004 Berkshire Hathaway annual meeting, Warren Buffett said the following about anchoring:"When I bought something at X and it went up to X and 1/8th, I sometimes stopped buying, perhaps hoping it would come back down. We’ve missed billions when I’ve gotten anchored.
Randomness and the 'Ludic' fallacy:
One of the fallacies that the Prof. Epps character committed was what Nassim Nicholas Taleb has called the "Ludic Fallacy" (to my knowledge, he first coined and defined this term in his forward to Aaron Brown's The Poker Face of Wall Street). As I understand it, the Ludic Fallacy refers to the unfortunate habit of many quantitative professionals (statistics and economics professors, Wall Street traders, management consultants, government technocrats, etc.) to over-simplify the nature of randomness and chance by making mistaken analogies to games ('ludic' -- of or relating to games or play -- comes from the Latin ludus -- game or play) of chance.
The market's patterns are not our own:
The results also suggest that market returns are patterned in a manner that is precisely the opposite from the pattern of human expectations. If we see something rise during the past day and also during the past five days, it is human nature to look for the trend to be our friend and continue into the next several days. Conversely, if the market is down today and has been down over the past week, we naturally consider the market weak and expect further price softness.
But what happens is precisely the opposite.
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