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Your Money and Your Brain

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What happens inside our brains when we think about money? Quite a lot, actually, and some of it isn't good for our financial health. In Your Money and Your Brain, Jason Zweig explains why smart people make stupid financial decisions -- and what they can do to avoid these mistakes. Zweig, a veteran financial journalist, draws on the latest research in neuroeconomics, a fasc What happens inside our brains when we think about money? Quite a lot, actually, and some of it isn't good for our financial health. In Your Money and Your Brain, Jason Zweig explains why smart people make stupid financial decisions -- and what they can do to avoid these mistakes. Zweig, a veteran financial journalist, draws on the latest research in neuroeconomics, a fascinating new discipline that combines psychology, neuroscience, and economics to better understand financial decision making. He shows why we often misunderstand risk and why we tend to be overconfident about our investment decisions. Your Money and Your Brain offers some radical new insights into investing and shows investors how to take control of the battlefield between reason and emotion. Your Money and Your Brain is as entertaining as it is enlightening. In the course of his research, Zweig visited leading neuroscience laboratories and subjected himself to numerous experiments. He blends anecdotes from these experiences with stories about investing mistakes, including confessions of stupidity from some highly successful people. Then he draws lessons and offers original practical steps that investors can take to make wiser decisions. Anyone who has ever looked back on a financial decision and said, "How could I have been so stupid?" will benefit from reading this book.

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What happens inside our brains when we think about money? Quite a lot, actually, and some of it isn't good for our financial health. In Your Money and Your Brain, Jason Zweig explains why smart people make stupid financial decisions -- and what they can do to avoid these mistakes. Zweig, a veteran financial journalist, draws on the latest research in neuroeconomics, a fasc What happens inside our brains when we think about money? Quite a lot, actually, and some of it isn't good for our financial health. In Your Money and Your Brain, Jason Zweig explains why smart people make stupid financial decisions -- and what they can do to avoid these mistakes. Zweig, a veteran financial journalist, draws on the latest research in neuroeconomics, a fascinating new discipline that combines psychology, neuroscience, and economics to better understand financial decision making. He shows why we often misunderstand risk and why we tend to be overconfident about our investment decisions. Your Money and Your Brain offers some radical new insights into investing and shows investors how to take control of the battlefield between reason and emotion. Your Money and Your Brain is as entertaining as it is enlightening. In the course of his research, Zweig visited leading neuroscience laboratories and subjected himself to numerous experiments. He blends anecdotes from these experiences with stories about investing mistakes, including confessions of stupidity from some highly successful people. Then he draws lessons and offers original practical steps that investors can take to make wiser decisions. Anyone who has ever looked back on a financial decision and said, "How could I have been so stupid?" will benefit from reading this book.

30 review for Your Money and Your Brain

  1. 4 out of 5

    Jennifer

    4.5 stars. A fascinating survey of how the most primitive recesses of our brains drive so many of our investment decisions. This book explores why (for instance), despite the fact that everyone knows we should "buy low and sell high," so few people are actually able to stick to that rule. When stocks collapse 25% in one day, most people panic and sell their stocks rather than buying MORE stocks (which are ON SALE!) the next day. On the other hand, when the stock market soars to new heights, most 4.5 stars. A fascinating survey of how the most primitive recesses of our brains drive so many of our investment decisions. This book explores why (for instance), despite the fact that everyone knows we should "buy low and sell high," so few people are actually able to stick to that rule. When stocks collapse 25% in one day, most people panic and sell their stocks rather than buying MORE stocks (which are ON SALE!) the next day. On the other hand, when the stock market soars to new heights, most people feel compelled to BUY despite the fact that in such a climate, securities are more EXPENSIVE than they have ever been. The human brain is hard-wired for us to react in exactly this way, despite the fact that we can logically recognize that these are foolish investment choices. Money represents the means of maintaining life and sustaining us as organisms in the world and therefore it triggers highly emotional parts of our brains. Losing money can feel like we are standing on the crumbling edge of a cliff, pushing all logical decision making out the window. This fascinating book draws on research from neurology, psychology, and economics to shed light on the tension between reason and emotion in our investment decisions. The author walks the reader through practical steps to help investors make more mindful decisions in light of our all too human weaknesses.

  2. 5 out of 5

    Felicity

    Must read for every investor. Chapter One: Neuroeconomics “One of the themes of this book is that our investing brains often drive us to do things that make no logical sense- make perfect emotional sense.” 3 “The investing brain is far from the consistent, efficient, logical device that we like to pretend it is. Even Nobel Prize winners fail to behave as their own economic theories say they should.”5 “And it’s not as if emotion is the enemy and reason is the ally of good financial decisions. People Must read for every investor. Chapter One: Neuroeconomics “One of the themes of this book is that our investing brains often drive us to do things that make no logical sense- make perfect emotional sense.” 3 “The investing brain is far from the consistent, efficient, logical device that we like to pretend it is. Even Nobel Prize winners fail to behave as their own economic theories say they should.”5 “And it’s not as if emotion is the enemy and reason is the ally of good financial decisions. People who have suffered head injuries that prevent them from engaging the emotional circuitry in their brains can be terrible investors. Pure rationality with no feelings can be as bad for your portfolio a sheer emotion unchecked by reason. Neuroeconomics shows that you will get the best results when you harness your emotions, not when you strangle them.”5 “Knowing who you are as an investor can make you a fortune- or save you one.” 6 Chapter Two: Thinking and Feeling -You think with the reflexive system (emotional) and the reflective system (analytical). Reflexive is impulsive and reflective takes longer. -Trust your gut, know when reflexive thinking will rule your thinking process, ask another question to dig deeper into your assumptions, don’t just prove-try to disprove, conquer your senses with common sense, only fools invest without rules, sleep on important decisions, do your homework ahead of time so you are ready to buy when a stock drops, stocks have prices and businesses have values (prices change thousands of time a day but the value of the business takes a lot long to appreciate or depreciate- as the business value increases the price will naturally increase). - “Buffet says, “My first question, and the last question, would be, ‘Do I understand the business?’ And by understand it, I mean have a reasonably good idea of what it will look like in five or ten years from an economic standpoint.” If you aren’t comfortable answering that basic question, you shouldn’t buy the stock.”32 Chapter Three: Greed -Expecting a financial gain is more rewarding and exciting than actually receiving one. 35 -Once you’ve experienced expecting a large financial gain (winning the lottery) once, you chase it again your whole life. You will do crazy things to achieve this feeling again. -Our brains do this so that we will continue to chase long term goals. The reward we get from anticipation helps gives us the patience and perseverance it takes to achieve long term goals. -“Jacob Horner is incapable of imagining future pleasures and thus is paralyzed whenever he confronts a choice.”40 -“Choosing is existence: to the extent that you don’t choose, you don’t exist.” - A common saying “Buy on the rumor, sell on the news” works because the rumor is the anticipation which rewards the brain so people buy. When investors finally get the good news they want, it’s not as good as they thought it would be so they sell. 42 -Your memory is better when you are expecting a financial gain. This is the reason you remember the risky bets you took that paid off, rather than the ones that didn’t. -Your reflexive system measures anticipation and your reflective system measures probability. That’s why we tend to consider anticipation before the chance of it happening. -Your anticipation circuitry doesn’t evaluate potential gains in isolation. We assess our potential outcomes not just against what did happen, but what could have happened.47 -Getting a grip on your greed: 1. There are no sure things on wall street. Be on your guard against those luring you in with excitement over potential gain. 2. Put the money you will use on risky investments in totally different account and don’t add any money to it no matter what. 3. Control the cues that could influence you to act impulsively. 4.Think twice Chapter Four: Prediction “All these predictions fall prey to the same two problems: First, they assume that whatever has been happening is the only thing that could have happened. Second, they rely too heavily on the short-term past to determine the long-term future.” -Three reasons investors who do the most homework don’t necessarily do the best: 1. The market is usually right. 2. It takes money to move money. 3. Randomness rules. -It is human nature to search for patterns, however, we tend to assume there are patterns in investing where order and patterns do not lie. -“what we’ve learned about prediction might make you wonder whether investing is a fool’s game or we’re all doomed to destroy our wealth with our own idiocy. -How to overcome your brain’s tendency to automatically predict: 1. Control the controllable: your expectations, your risk, your readiness, your expenses, your commissions, your taxes, your own behavior 2. Stop predicting and start restricting: invest on a schedule, not when you think the market will move. 3. Ask for evidence before believing “experts” predictions. 4. Practice before putting money behind it. 5. FACE UP TO BASE RATES 6. Correlation is not causation 7. Take a break 8. Don’t obsess (stop checking your stocks so often) (thought: this book has a ton of information and makes too many points. some could be omitted) Chapter Five: Confidence -Familiarity becomes synonymous with safety. People become overconfident in what they’re familiar with. We feel better when we are around the familiar. We like things the more we are exposed to them. -A winning streak makes you feel like you’re playing with house money. Streaks make the future feel more predictable. Streaks make the investor feel like luck is on their side over random chance. 107 “Because being on a roll is so thrilling, it generally takes at least two scaldings before even so-called experts can begin to learn not to touch a “market bubble””. People turn manic when they’re in a winning streak. -frequent traders tend to underperform less frequent traders by about 7 points a year. They tend to be overconfident. “What counts for most people in investing is not how much they know, but rather how realistically they define what they don’t know. An investor needs to do very few things right as long as he or she avoids big mistakes.” – Warren Buffet 119 How to correct your confidence: Diversifying allows you to not have to be confident in one sector; after evaluating a stock cut the high and low end of the range down by 25% to account for overconfidence; keep a record of what was on your mind when you made predictions so you can see if it went up for the reason you thought it would; track portfolios of stocks you don’t own (thought about buying but didn’t, stocks you’ve sold, etc); compare your earnings and expected earnings to base lines; write down mistakes and lessons learned from them; don’t keep more than 10% in your own company’s stock; keep asking why to every answer- people who don’t know what they’re talking about usually can’t get past the second why. Chapter Six: Risk -Risk tolerance is not fixed; it changes with your moods/emotions. -How information is framed determines your perspective/feelings about its risk. -Interaction between thinking and feeling creates framing. -Framing probability as X out of X people instead of a percentage sounds more like it would occur. -People who can’t afford to take large risks usually are more likely to because they need the possible gain more than richer individuals. 146 How to manage your risk: 1. Don’t buy/sell spur of moment because your risk level can change based on your emotions. 2. Step outside yourself (would you advise your mom to do this) 3. Write yourself an investment policy (what youre seeking to do accomplish with your money and how you will get there. Long term objestices and constraints along the way 4. Reframe situations 5. Try to prove yourself wrong 6. Instead of thinking in terms of risk, think in terms of goals. What do you need to do or avoid doing to achieve these goals? Chapter Seven: Fear -Dread and knowability determine how scary/risky something is. Dread is determined by how controllable, vivid, or catastrophic an event may be. Knowability is determined by how immediate, specific, or certain the consequences may be. -Your amygdala helps you overreact to anything that is new, changing, or out of place making you feel afraid before you even realize you’re afraid. -When you don’t conform your amygdala lights up. -How to keep cool when facing your fears: 1. Get it off your mind for a little bit 2. Use your words to describe investment decisions as this dims the amygdala’s reaction 3. Track your feelings 4. Get away from the herd (write down your investment ideas/reasons before encountering herd; run group consensus by trusted person not in group; Chapter Eight: Surprise -Financial markets humiliate anyone who thinks they know what’s coming, so expect to be surprised. -How to embrace the unexpected: 1. Whenever you’re tempted to do what everyone else is doing, don’t. 2. High hopes cause big trouble 3. Track why you were surprised 4. Focus on how the surprise affects the company, not the stock price, in the long run. Chapter Nine: Regret -Your instincts tell you that you will feel more regret over a mistake of action rather than a mistake of inaction. -Regret is also based on what you missed out on getting what you got. -No matter what you do, something else can seem like what you should have done. -regression to the means: a term that means that progress will eventually be hindered by naturally staying towards the mean. This means stocks that go up will always come down eventually, even if only a little. -On average, half of stocks will do better than the market and half will do worse, but with fees and taxes, your odds of outperformance drop to one in three. Choosing stocks on basis of past returns along will make you end up wrong about two thirds of the time. Intelligent investors don’t make that mistake. -Your insula puts you in touch with what your body is doing. Main center for evaluating negative emotions. -“Investors may hurt themselves more by avoiding risks they imagine they might regret than by taking risks they really do end up regretting. People who avoid actions they think might hurt later often are buying emotional insurance that they do not actually need. Lessons to overcome investing regret: 1. Talk it out with someone. 2. Having rules gives you a reason to fall back on when you feel regret 3. Get second opinions 4. Find silver lining when you sell (tax cuts) 5. Only sell because there’s something wrong with the business, not because the price is low. 6. Implement automatic investing 7. Automatically rebalance your asset allocation Chapter 10: Happiness -we misjudge what we want, how we will feel when we get it, and how long that feeling will last -you usually see the past as being better than it truly was. -money spent on acquisitions is more likely to be thought of as a mistake as time passed. Money spent on experiences are more likely to be thought of as better as time passes. -whether or not you’re happy with what you have partly depends on what people around you have -the happier you are the more money, the longer life, and the healthier you will probably be -Being lucky is partly a skill- you can be in lucky situations but you have to initiate and do make the most out of them for them to be good for the most part -How to be lucky: 1. Don’t give up 2. Look outward: curious, observant, engaging 3. Look on the bright side 4. -How to be happier: 1. Meditate/breath 2. Don’t watch tv 3. Combine a dreaded activity with hanging out with friends 4. Exercise 5. Celebrate/throw a party when in a bad mood, not just good ones 6. End experiences on a high note to remember them as more positive 7. Surprise someone 8. Learn something new 9. Accentuate the positive 10. Make your own luck: try new things, notice the world around you 11. Don’t procrastinate 12. Experiences are better than materials 13.

  3. 5 out of 5

    Benedict Gnaniah

    I went to the library, just wanted to return an scram. While on the counter this book seemed to plead with me, well literally, to take me home. I said okay let me try you, I like this neuro science trip anyway.. Page 5 actually stopped me on my tracks the author quotes Psychologies Daniel Kahneman of Princeton University " Financial decision making is not necessarily about money, its also about intangible motives like avoiding regret or achieving pride" . I loved this .. think I will be able to I went to the library, just wanted to return an scram. While on the counter this book seemed to plead with me, well literally, to take me home. I said okay let me try you, I like this neuro science trip anyway.. Page 5 actually stopped me on my tracks the author quotes Psychologies Daniel Kahneman of Princeton University " Financial decision making is not necessarily about money, its also about intangible motives like avoiding regret or achieving pride" . I loved this .. think I will be able to run through this book. Listen to this on page 3 - Investing brains often drive us to do things that make no logical sense- but make perfect emotional sense. That doesnt not make us irrational. It makes us human. Our brains were originally designed to get more of whatever would improve our odds of survival and to avid whatever would worsen the odds. Emotional circuits deep in our brains make us instinctively crave whatever feels likely to be rewarding - and shun what ever seems liable to be risky. To counteract these impulses form cells that originally developed tens of millions of years ago, the brain has only a thin veneer of relatively modern, analytical circuits that are often no match to the blunt emotinoal power of the most ancient parts of your mind. Thats why know the right answer and doing the right thing are two different things.

  4. 5 out of 5

    Zohar - ManOfLaBook.com

    This behavioral finance book came recommended to me and I’m glad it did. The book, in a very non-technical language, touches on how the body reacts physically and mentally to the changing stock market. The author explains how the brain works when faced with pleasant events (stocks going up) and unpleasant events (stocks going down) and when faced with peer pressure or an important decision. After the explanation, the book tells you simple techniques to avoid or circumvent these issues as well as This behavioral finance book came recommended to me and I’m glad it did. The book, in a very non-technical language, touches on how the body reacts physically and mentally to the changing stock market. The author explains how the brain works when faced with pleasant events (stocks going up) and unpleasant events (stocks going down) and when faced with peer pressure or an important decision. After the explanation, the book tells you simple techniques to avoid or circumvent these issues as well as a great checklist to go through before gambling in the stock market. I do have a “play account” and aside from my retirement account which I opened to learn about the stock market. This book has helped me focus on my actions instead of actions of others as well as make the stock market gambling a bit more interesting (using my play account only). Maybe in a year or so I’ll be brave enough to stick a few more dollars, but meanwhile – a fake portfolio – here I come.

  5. 5 out of 5

    John

    The emotional response of the reflexive brain overwhelms the analytical powers of the reflective brain. One can avert portfolio paralysis by investing gradually and automatically over time with a $-cost averaging plan. "Found money" can do funny things to your head. http://www.google.com/url?sa=t&rc...

  6. 5 out of 5

    Thomas

    How the brain reacts to stimulus as it relates to gains, gambles, losses, framing, etc. Has helped me obsess less about the stock market.

  7. 5 out of 5

    Akhil Jain

    My fav quotes (not a review): -Page 5 | "My intention was to minimize my future regret. So I split my contributions 50/50 between bonds and equities." -Page 5 | "An expert in linear programming, he knew that “I should have computed the historical co-variances of the asset classes and drawn an efficient frontier. Instead, I visualized my grief if the stock market went way up and I wasn’t in it—or if it went way down and I was completely in it. My intention was to minimize my future regret. So I spl My fav quotes (not a review): -Page 5 | "My intention was to minimize my future regret. So I split my contributions 50/50 between bonds and equities." -Page 5 | "An expert in linear programming, he knew that “I should have computed the historical co-variances of the asset classes and drawn an efficient frontier. Instead, I visualized my grief if the stock market went way up and I wasn’t in it—or if it went way down and I was completely in it. My intention was to minimize my future regret. So I split my contributions 50/50 between bonds and equities.” The researcher’s name was Harry M. Markowitz. Several years earlier, he had written an article called “Portfolio Selection” for the Journal of Finance showing exactly how to calculate the tradeoff between risk and return. In 1990, Markowitz shared the Nobel Prize in economics, largely for the mathematical breakthrough that he had been incapable of applying to his own portfolio." -Page 7 | “If you don’t know who you are,” quipped the investment writer “Adam Smith” in his classic book The Money Game, then Wall Street “is an expensive place to find out.” -Page 8 | "financial losses are processed in the same areas of the brain that respond to mortal danger;" -Page 21 | "Our reflective brains know that the fruit salad is better for our health, but our reflexive brains crave that gooey, fattening chocolate cake." -Page 21 | "Then they were offered the choice of either a fruit salad or a chocolate cake. When the number the students memorized was seven digits long, 63% of them chose the cake. When the number they were asked to remember had just two digits, however, 59% opted for the fruit salad. Our reflective brains know that the fruit salad is better for our health, but our reflexive brains crave that gooey, fattening chocolate cake. If the reflective brain is busy figuring something else out—like trying to remember a seven-digit number—then impulse can easily prevail." -Page 26 | "That’s because the investors who fixated on price changes traded" -Page 49 | "Once you learn that a given gamble could make money, you will remember those circumstances—and the thrill of expecting the jackpot—far better and much longer than you will recall the bets that never paid off." -Page 52 | "“You’re very likely to have some vivid imagery of piles of money and fantasies about how you’ll spend it. But your brain isn’t designed to form mental imagery of a probability." -Page 57 | "Psychologist Howard Rachlin of the State University of New York at Stony Brook has shown that one of the best first steps toward quitting tobacco is to try smoking the same number of cigarettes each day—and that offers a hint for us. Fewer opportunities for greed, plus less variability in the amount of satisfaction you can look forward to, will equal more self-control." -Page 64 | "Our knack for perceiving order even where there isn’t any is what the astronomer Carl Sagan called the “characteristic conceit of our species,” and what others have called pareidolia," -Page 74 | "Lay an MRI brain scan of a cocaine addict next to one of somebody who thinks he’s about to make money, and the patterns of neurons firing in the two images are “virtually right on top of each other,” says Breiter. “You can’t get a better bull’s-eye hit than those two.”" -Page 74 | "Once you’ve learned what kind of cue can signal a reward, your dopamine neurons no longer fire up in response to the gain itself; instead, they will be triggered by the appearance of the cue." -Page 77 | "If you had to wait around for things to consciously feel good, then you would never behave right and you would die.”" -Page 86 | "J. Scott Armstrong, a marketing professor at the Wharton School of Business, likes to cite what he calls “the seer-sucker theory: for every seer there is a sucker.”" -Page 181 "Some of the viewers were asked how fast the cars were going when “they hit each other.” Others were asked how fast the cars were going when “they smashed into each other.” Even though both groups saw the same videos, the people who were prompted by the words “smashed into” estimated that the cars were going 19% faster. “Hit” may not sound very scary, but “smashed into” does. That evidently switches on the amygdala, splashing emotion back onto your memory and changing your perceptions of the past." -Page 192 "The players all turned to look at the comedian, a distraction that allowed their minds to tune out the stress and win the game in the nick of time. When you feel overwhelmed by a risk, create a John Candy moment. To break your anxiety, go for a walk, hit the gym, call a friend, play with your kids." -Page 215 "The word invest literally means to clothe yourself in something."

  8. 4 out of 5

    InvestingByTheBooks.com

    “The investor's chief problem – and even his worst enemy – is likely to be himself.” Many of the readers are probably familiar with this profound quote from Benjamin Graham in the Intelligent Investor. In Your Money & Your Brain, Jason Zweig presents many of the reasons to why the sentence by Benjamin Graham is true. The book is aimed at helping the reader to profit for the long term both in terms of wealth and also living a more meaningful life by understanding the psychological reasons for “The investor's chief problem – and even his worst enemy – is likely to be himself.” Many of the readers are probably familiar with this profound quote from Benjamin Graham in the Intelligent Investor. In Your Money & Your Brain, Jason Zweig presents many of the reasons to why the sentence by Benjamin Graham is true. The book is aimed at helping the reader to profit for the long term both in terms of wealth and also living a more meaningful life by understanding the psychological reasons for our actions. Zweig has been working as a financial journalist for more than 30 years. More than the last 20 years have been spent with the Wall Street Journal where he has been writing weekly columns. His columns are most often focused on subjects such as financial history, behavioral finance and neuroeconomics. Zweig is passionate about helping people to avoid bad investment decisions which includes criticizing bad practices in the financial market. For value investors Zweig is probably most known for having updated the latest edition of the Intelligent Investor. The author describes how his interest for neuroeconomics started in 1998 when he picked up a newspaper at an airport which included an article about neuroscience. The subject led Zweig to insights he couldn't have dreamed of acquiring simply by reading typical investment material highlighting the importance of learning from multiple disciplines. Your Money & Your Brain can be used as a source to gain understanding about why humans react as they do and why. The human brain is ancient and is still optimized for the hunter gatherer society where humans have spent most of their existence. Many readers may be aware of some of the concepts in the book, having already read books such as Daniel Kahneman's Thinking Fast and Slow. The book starts with an introduction to neuroeconomics and how the brain works. The reader is then presented with areas and feelings that have huge impact on investors and other decision makers. Some of these are fear, greed, confidence and regret. In every chapter, Zweig describes the neurological background to the feelings and also presents recommendations on how to live and act as an investor in order to avoid them. He presents which part of the brain is causing which feeling and introduces the reader to further studies about the brain. He backs up all the material with references to scientific studies. Both this book and Zweig's The little book about safe markets, published in 2010, is directed to a broad mass of people and to personal finance readers, making some of the material a bit basic for the experienced investor. The benefit of this is that the language is really easy to grasp. Zweig is a terrific writer in how he is making a difficult topic feel simple. Having read a lot of books about behavioral economics and neuroeconomics I have gotten the impression that the most important thing is to set up habits and routines to avoid ending up in certain situations, instead of trying to overcome them. That impression only got stronger having read this book. Zweig steer his readers in a very clever way as he is ending every chapter with suggestions of habits that could help the reader avoid getting tricked. Myself, I have already started to introduce some of the habits in my daily life which I see as a great compliment to the author. As many other investors, I have felt the pain of having fooled myself and am working hard to avoid it. Your Money & Your Brain is of great aid in that regard.

  9. 5 out of 5

    Andrew

    It probably isn't fair to rate it without reading the entire book, but I couldn't get 20 pages in before my brain shut down. Why did I decide to read a 200+ page book about neuroeconomics and money? I already understand the fallibility of using instinct/intuition for complex decisions like investing. The book follows the common, serialized format of sharing stories about tests and experiments to prove a point. It adds in quiz questions and thought experiments to further solidify the point which s It probably isn't fair to rate it without reading the entire book, but I couldn't get 20 pages in before my brain shut down. Why did I decide to read a 200+ page book about neuroeconomics and money? I already understand the fallibility of using instinct/intuition for complex decisions like investing. The book follows the common, serialized format of sharing stories about tests and experiments to prove a point. It adds in quiz questions and thought experiments to further solidify the point which some may find enjoyable. I personally found this immediately unnecessary and exhausting to drudge through. It immediately became clear to me that I would not be able to get an itemized list of action items to safeguard myself from my reflexive brain's fallibility when it comes to investing. Maybe I disliked this so much because I already read Common Sense on Mutual Funds by Jack Boyle, which thoroughly proved that high portfolio turnover that comes from an actively managed fund is a cost prohibitive practice for the birds. Maybe those birds are the ones who should be reading this book instead of me.

  10. 4 out of 5

    Matt

    A deep look into the field of neuroeconomics, which studies the way our brains react to thinking about finances and investing.  This book references loads of great research on the emotions involved with investing and the specific parts of the brain that are involved with financial decisions.  It also details the differences between our reflexive and reflective thinking and describes how we as humans are wired to live for today instead of saving for tomorrow.  There are several great investing ti A deep look into the field of neuroeconomics, which studies the way our brains react to thinking about finances and investing.  This book references loads of great research on the emotions involved with investing and the specific parts of the brain that are involved with financial decisions.  It also details the differences between our reflexive and reflective thinking and describes how we as humans are wired to live for today instead of saving for tomorrow.  There are several great investing tips included such as portfolio design, the benefits of auto-rebalancing and even an investing checklist to consult when buying a stock or mutual fund. The closing chapter in Happiness was my favorite; it describes happiness in life as 3 basic paths: having, doing and being.  He explains how happiness from having possessions fades over time, but happiness from doing (experiences and activities) and being (getting involved with community or a cause) is more meaningful and lasts much longer.

  11. 5 out of 5

    KNCHNGL

    Started re-reading this book in the wake of the recent bitcoin / crypto / blockchain speculation that has ensured in the last couple of months, to get a better grip on FOMO mania. As the editor of the revised edition of Benjamin Graham's "Intelligent Investor", Mr. Zweig is most certainly qualified to write on this topic. From evolutionary psychology to behavioral economics, this is a great primer on how and why your brain works to make you feel the way you do. The lessons here are much more tha Started re-reading this book in the wake of the recent bitcoin / crypto / blockchain speculation that has ensured in the last couple of months, to get a better grip on FOMO mania. As the editor of the revised edition of Benjamin Graham's "Intelligent Investor", Mr. Zweig is most certainly qualified to write on this topic. From evolutionary psychology to behavioral economics, this is a great primer on how and why your brain works to make you feel the way you do. The lessons here are much more than just about making money; they are applicable achieving a balanced and happy life. At times, the content felt a bit redundant, but that was expected given the overlap of what constitute human emotions. I especially liked the way it was organized according to the major emotions, culminating in what we all seek - happiness.

  12. 4 out of 5

    Adam Holmes

    Disappointing. Perhaps it’s my own expectations that left me feeling disappointed as I expected this book to be about investing and the psychological strategies therein. All tolled, the connection between investing strategy and what is discussed in the book could be presented in less than four pages. There is absolutely nothing here regarding the strategy of investing that I haven’t heard before. I wasn’t entirely disinterested since reading about psychology is never totally boring. After all, I d Disappointing. Perhaps it’s my own expectations that left me feeling disappointed as I expected this book to be about investing and the psychological strategies therein. All tolled, the connection between investing strategy and what is discussed in the book could be presented in less than four pages. There is absolutely nothing here regarding the strategy of investing that I haven’t heard before. I wasn’t entirely disinterested since reading about psychology is never totally boring. After all, I did finish the book. However, many if not most of the psychology experiments outlined within, I was either aware of or had read about in other books (author Dan Ariely comes to mind). I was also aware that these are not exactly peer-reviewed experiments. In the end, I found a lot of talk but not the substance I was looking for.

  13. 5 out of 5

    Malin Friess

    You are in Detroit, Michigan...you start driving South. What country will you hit first? Mexico, Guatemala, Honduras or Canada. OK you have your answer...are you 50% certain, 75% certain, or 99% certain you are correct? Most people got the answer wrong and are overly confident with their choice (the answer is Canada--as you cross the bridge you will enter Windsor, Canada to the south from Detroit...google it)..such as most people are wrong with investing and also over confident and downplay the You are in Detroit, Michigan...you start driving South. What country will you hit first? Mexico, Guatemala, Honduras or Canada. OK you have your answer...are you 50% certain, 75% certain, or 99% certain you are correct? Most people got the answer wrong and are overly confident with their choice (the answer is Canada--as you cross the bridge you will enter Windsor, Canada to the south from Detroit...google it)..such as most people are wrong with investing and also over confident and downplay the risk. The book is filled with psychology research about why smart people make impulsive, risky decision and don't save and procrastinate. 3 stars.

  14. 4 out of 5

    Marco

    In this book you will find a lot of experiments done with people about how they react to certain content related tests. Then after these experiments, the author will describe how we people make faults during this experiments. He also writes about mistakes we make in daily life related to the topics discussed. During the reading you will find interesting and fun facts that you might never have imagined. And after all at the end of each chapter, there is a summary about how you can implement real In this book you will find a lot of experiments done with people about how they react to certain content related tests. Then after these experiments, the author will describe how we people make faults during this experiments. He also writes about mistakes we make in daily life related to the topics discussed. During the reading you will find interesting and fun facts that you might never have imagined. And after all at the end of each chapter, there is a summary about how you can implement real strategies to improve your life and especially your investing game. Easy read. If you are known with Daniel Kahneman then you will probably like this book to.

  15. 5 out of 5

    Rebecca

    Glad I was able to wrap this book up! The book is pretty dense with examples and reference to the brain. I liked the overall philosophy of the book, but found myself frequently thinking....well this doesn't really apply to me. For example I don't buy individual fund/stock and I play a long term game, so all the parts about timing and regret are generally interesting and useful, but not in the specific ways the author references. I was pleasantly surprised by the last chapter (Happiness) and it r Glad I was able to wrap this book up! The book is pretty dense with examples and reference to the brain. I liked the overall philosophy of the book, but found myself frequently thinking....well this doesn't really apply to me. For example I don't buy individual fund/stock and I play a long term game, so all the parts about timing and regret are generally interesting and useful, but not in the specific ways the author references. I was pleasantly surprised by the last chapter (Happiness) and it really is applicable much wider than just money.

  16. 4 out of 5

    Zach Goldman

    The title of this book is apt; it indeed fills its pages with plenty of studies and discussion of your brain and how it relates to money. However, the subtitle "How the new science of neuroeconomics can help make you rich" I think over-promises the book's benefits. There are some tips of taking advantage of the knowledge of how our brains work in order to advance our financial choices, but I thought they were few and far between. The exception is the final chapter on "Happiness," which was my fa The title of this book is apt; it indeed fills its pages with plenty of studies and discussion of your brain and how it relates to money. However, the subtitle "How the new science of neuroeconomics can help make you rich" I think over-promises the book's benefits. There are some tips of taking advantage of the knowledge of how our brains work in order to advance our financial choices, but I thought they were few and far between. The exception is the final chapter on "Happiness," which was my favorite chapter and would recommend reading. If behavioral finance interests you from an academic standpoint, I would definitely recommend it. There are plenty of interesting studies and statistics that I couldn't help sharing with other people. If you're looking for a more practical book to apply to your own financial life, I'd recommend "How to Think About Money" by Jonathan Clements. There's overlap between the material, but Mr. Clements's book is much shorter and more applicable to your life. (And a quick note is that Clements was writing the "Weekend Investor" column for The Wall Street Journal before Jason Zweig took over.)

  17. 4 out of 5

    Ryan Hansen

    I liked this book a lot. It gives a lot of anecdotes and examples to illustrate the points that Zweig makes in his text. The only thing that I did not love about it is that it focused a lot on selecting single stocks, including buying and selling. He does talk some about long term investing. I do not trade in single stocks, but did find a lot of value, insight and inspiration in this book. Definitely gave me some things to think about and was well worth the time and effort it took to read it.

  18. 4 out of 5

    Chris

    I really liked this book. It discusses some of the mental gymnastics that our brains go through when we are making decisions involving money. And it answers the question why we are most often our own worst enemies when it comes to investing. I re-read the last chapter on happiness at least once because it seemed so relevant in today's context. I also thoroughly enjoyed the discussions of the experiments and shared a few with friends. They found them as enjoyable as I did.

  19. 5 out of 5

    John

    Written in 2007, the ideas in this book have been eclipsed in part by the works of others, most notably Daniel Kahneman, the Nobel-Prize winning psychologist upon whose research (with Amos Tversky), much of Behavioral Economics is based. Zweig delves much deeper into the science of the brain (as the title implies) than other authors. Given the tricks our brains play on us, it doesn't hurt to learn these lessons over and over.

  20. 4 out of 5

    Alex Watt

    This book exceeded my expectations for a book on investing. It's even more about psychology, as the title suggests. Lots of good advice for how to invest well when so many things, including our brains, are stacked against us. The last chapter is the best--if you can only read one, it's worth reading.

  21. 4 out of 5

    Josh

    This book had some good points on how our brain reacts to money and why we make some of the decisions we do. Gets repetitive with the examples and dialogue. Good ending on happiness and appendix on dos and don'ts of investing

  22. 5 out of 5

    Johnny

    WSJ journalist points out how human psychology interacts with investments and decision makings in general. Well researched book with good stories. Worth a read.

  23. 4 out of 5

    Basili

    Interesting and engaging read about the mental quirks of our brain and how to apply them to create a happier and more prosperous life.

  24. 5 out of 5

    Patrick

    To be reviewed

  25. 4 out of 5

    Jason Peters

    Didn't read the whole thing. Lots of words and examples to communicate a few important principles. Great appendix in the back for Do's and Don't's of investing.

  26. 5 out of 5

    Henrik Haapala

    Absolutely massively useful!!

  27. 5 out of 5

    Sanford Chee

    Jason Zweig's interview http://www.ritholtz.com/blog/2015/09/... Key takeaways: 1. Monitor stock prices less and hence consequently trade less 2. Don't make decisions when decision fatigued 3. Stock trading can be as addictive as cocaine 4. When forecasting ask yourself: "What is the base rate?" See also Michael Mauboussin on 'Sharpening Your Forecasting Skills' https://doc.research-and-analytics.cs... (a) The key to superforecasters is how they think. They are actively open-minded, intellectually humble Jason Zweig's interview http://www.ritholtz.com/blog/2015/09/... Key takeaways: 1. Monitor stock prices less and hence consequently trade less 2. Don't make decisions when decision fatigued 3. Stock trading can be as addictive as cocaine 4. When forecasting ask yourself: "What is the base rate?" See also Michael Mauboussin on 'Sharpening Your Forecasting Skills' https://doc.research-and-analytics.cs... (a) The key to superforecasters is how they think. They are actively open-minded, intellectually humble, numerate, thoughtful updaters, and hard working. (b) Inverse correlation between fame and accuracy. While famous experts had among the worst records of prediction, they demonstrated “skill at telling a compelling story.” (c) 4 drivers: (1) Find the right people. You get a 10-15 percent boost from screening forecasters on fluid intelligence (foxes not hedgehogs) and active open-mindedness (i) Philosophical outlook; comfortable with a sense of doubt - “nothing is certain”; nondeterministic; open minded & curious (ii) Humility (iv) Rationality Quotient (RQ not just IQ) (v) Good forecasting requires considering multiple points of view & using multiple mental models e.g. Charlie Munger's Latticework of Interdisciplinary Mental Models & Toolkits (vi) Wisdom of crowds (vii) Think in terms of probabilities. Bayes’s Theorem to update probability: P(A/B) = P(B/A)*P(A)/[P(B/A)*P(A) + P(B/A')*P(A')] (2) Manage interaction. You get a 10-20 percent enhancement by allowing the forecasters to work collaboratively in teams or competitively in prediction markets (3) Train effectively. Cognitive debasing exercises (e.g. Mental Checklist against Misjudgement) lift results by 10 percent (4) Overweight elite forecasters or extremize estimates. Results improve by 15-30 percent if you give more weight to better forecasters and make forecasts more extreme to compensate for the conservatism of forecasts. (d) Ask good questions - clear outcome w/i a specified period of time and addresses an issue that is relevant to the world (e) Approaches to forecasting: triage; question clustering (break down a big question into component parts) 5. Overconfidence - covered more comprehensively in Rolf Dobelli’s 'Art of Thinking Clearly’: overoptimism tendency; confirmation bias; availability mis-weighting tendency; creeping determinism; Dunning-Kruger effect; illusion of control; endowment effect; primacy & recency effects 6. Risk tolerance statements are nonsense. You don’t know your risk tolerance. 7. Dealing w/ fear during market meltdowns - ask yourself: (1) Other than the price, what else has changed? (2) Are my original reasons for investing still valid? (3) If I liked this investment enough to buy it at a much higher price, shouldn’t I like it even more now that the price is lower? (4) What other evidence do I need to evaluate in order to tell whether this is really bad news? (5) Has this investment ever gone down this much before? If so, would I have done better if I sold out or if I had bought more? 8. Looking for Shorts? Fallen Angels are a prospective hunting ground. "High hopes cause big trouble." 9. Cut loss 10. Ritual of Solitude: take a deep breath (Dr Andrew Weil’s 4-7-8 breathing technique); create quiet time for yourself. Unplug. Meditate. Think of one thing that you could accomplish today that would make you feel good. 11. Car pool 12. Go with the flow: an hour a day filled with the flow of exercise/art/music will refocus your energy and take your mind off your troubles 13. End on a high note: save the best for last in a holiday (recency effect) 14. Sharpen the Saw: continuous education e.g. Coursera 15. Doing and being are better than having - the best investment of all is channeling money into goals that will make your life more valuable. Your happiness ultimately depends no on finding out how much you can buy but on learning how much you can be “In the end, living a rich life depends less on how much you own than on how much you do, what you stand for, and how fully you reach your own potential.” - Jason Zweig

  28. 4 out of 5

    Viktor Nilsson

    It is a grand feat to describe in a simple way something really complicated such as neuroeconomics – I bet you never heard that word before. Benefiting from scientific research is hard to do for the layman until someone comes along to show its practical use to you. I bet you couldn’t build a car on your own – but you still drive one, because someone showed you how to use one. Thanks to this person, you don’t need to understand all the scientific research that went into building the car you’re dr It is a grand feat to describe in a simple way something really complicated such as neuroeconomics – I bet you never heard that word before. Benefiting from scientific research is hard to do for the layman until someone comes along to show its practical use to you. I bet you couldn’t build a car on your own – but you still drive one, because someone showed you how to use one. Thanks to this person, you don’t need to understand all the scientific research that went into building the car you’re driving. Most scientific fields has at least one such person, and for the field of neuroeconomics, that person is Jason Zweig. Neuroeconomics is the study of how people instinctively react to situations affecting their economic situation – specifically so when your reflexes will tell you to do one thing, while thinking about the problem might make you come to the opposite conclusion. It’s the science of studying the conflicts that arise between the reflexive and the reflective parts of your brain. The conflicts between feeling and knowing. Neuroeconomics thus borders in between neuroscience (brain-stuff), economics and psychology. One example of these conflicts is the way we act when we see historical stock prices. We might see a chart or we might hear the news reporter talking about how the stock market is booming – or crashing. Our monkey brains – we haven’t developed quite as far as we might think – will react to this by calculating what the trend is and tell us that it will continue. It doesn’t matter if we know that stock prices have no trends and that we cannot predict them – we will still feel that they are (and will continue to be) trending in one direction. So we might buy stocks in excitement over all the money we will make down the road – after they have become more expensive. And when the market has turned, we sell to protect us from feeling any more pain – after stocks have become cheaper. Although we all want to buy low and sell high, we end up doing the exact opposite – we buy high and sell low. We wait to buy until stocks become more expensive, and if we need to sell we wait until they become cheaper. The conflicts between our instincts and our reason have huge negative implications for our investment results. Neuroeconomics is addressing problems that everyday people run in to everyday, something that Zweig shows very well. The book contains pictures of brain scans from Zweig himself, and others, taken during experiments in neuroeconomics – such as simulations of investment experiences. This might make it sound like very tough reading, but it’s far from that. The pictures and medical explanations are not the foundation for this book, they only serve as to convince you that the things Zweig talk about are for real and have been scientifically proven. If you for some reason feel that you can trust every word of what he is saying, you can therefore skip the more technical parts. Overall the book is incredibly well written and well researched. It is very easy to understand, even when reading without full concentration, as I often find myself doing. This cannot be said of most other books on scientific matters. And although the book might be characterized as somewhat scientific, it is very practical. Zweig gives a lot of good advice on things you can do to avoid falling into the irrational traps that your emotions will set up for you every now and then. Jason Zweig is currently a columnist for The Wall Street Journal, and was before that a writer for Money Magazine. While I don’t agree with everything he says about investing in Your Money and Your Brain, it is mostly sound advice that I think all investors can apply. Zweig has also written the commentary for the 2003 publication of The Intelligent Investor – another book I would recommend anyone interested in investing to read. My conclusion is that this book is very much worth reading. Not just by people who would call themselves investors, but actually by all people who actually are investors – anyone who is saving for retirement in anyway, which should be all of us.

  29. 5 out of 5

    Jennifer

    This book, Your Money & Your Brain is subtitled How the New Science of Neuroeconomics Can Help Make You Rich. Perhaps a bit overhyped there, but the book does make a lot of points that if you can somehow bypass human nature you can avoid the things that cost investors money. The book is partly fascinating and partly dull. I'm into financial books, but I got a little bored with page after page (264 in total, plus appendix plus citations) of insight into various studies of the human condition d This book, Your Money & Your Brain is subtitled How the New Science of Neuroeconomics Can Help Make You Rich. Perhaps a bit overhyped there, but the book does make a lot of points that if you can somehow bypass human nature you can avoid the things that cost investors money. The book is partly fascinating and partly dull. I'm into financial books, but I got a little bored with page after page (264 in total, plus appendix plus citations) of insight into various studies of the human condition dealing with risk and reward, fear, etc. Perhaps less emphasis on the empirical and more on implementation in real life would have been better. Still, this book does provide insight. We all know you should Buy Low and Sell High. However most people buy high and sell low. It's because of the nature of the human brain, the disparity between thinking and feeling. Once we know our own nature, can we go against it? When the market is falling and people are scrambling to get out, can you stay in and ride it out? Or can you sell that underperforming investment even though you've had it for ages and you've got significant sunk costs? That's the part of the book that I'm not entirely sure of. I can see how one might try to examine their choices in the context of the book and do the "better" thing, but even when you can see the forest for the trees, are you really seeing the forest? Or do you just think that you are? In any case, this book has helped me examine my investment strategies. I feel fairly happy with my ability to avoid selling low in a falling market - I'm in it for the long haul and I let it ride. However, I definitely fall into the trap of never selling underperformers. This book may help me realize how to compensate for the feelings and emotions that prevent me from doing that, which may lead to better returns. Overall, I would recommend this book. I wouldn't read it all in a couple sittings, like I did, though because it was overwhelmingly scientific and got dull.

  30. 5 out of 5

    Kirtika

    Imagine a tour-guide giving you some dos and don'ts , a map of all the dark and dangerous places, all the pitfalls and missteps to avoid, and tips on what to expect before going on your adventure trip. This book does exactly that for anyone getting started with managing their own money. There are two main criticisms of this book: (1) It repeats a lot of Kahneman (Thinking Fast and Slow). (2) It talks a lot about how your brain reacts in specific situations w.r.t. reward and loss, without getting Imagine a tour-guide giving you some dos and don'ts , a map of all the dark and dangerous places, all the pitfalls and missteps to avoid, and tips on what to expect before going on your adventure trip. This book does exactly that for anyone getting started with managing their own money. There are two main criticisms of this book: (1) It repeats a lot of Kahneman (Thinking Fast and Slow). (2) It talks a lot about how your brain reacts in specific situations w.r.t. reward and loss, without getting into case studies or examples of how this plays out with real-world investment decisions. The first is true in that the author often cites Thinking Fast & Slow *verbatim* for a few paragraphs at a time! However, the author does a better job of explaining Kahneman than Kahneman himself. This is no ordinary feat - it took me about a month to get through Thinking Fast & Slow, and several folks have admitted to taking up to a year to get past the book. The author distills down the financially relevant parts and anecdotes from Thinking Fast & Slow to something that can be digested in under a week. The second is true, and I would have liked to see more case studies. However, the first step to fixing a problem is knowing in-depth what the problem is, and acknowledging it. The book does a fantastic job of vividly depicting what the problem is, even if it doesn't hand-hold you through how to avoid/fix the problem itself. For example, it shows how neurons in your brain fire up more ferociously at the *prospect* of a reward, than the actual gain itself, and how that memory stays, causing you to take riskier decisions in the future.

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