Hi All, I wanted to let you all know about an interesting article in this month’s issue of the Harvard Business Review. It is entitled “The Big Idea: Before You Make That Big Decision…” – it’s all about cognitive biases in business decision-making. While there’s a huge body of literature dedicated to identifying what these biases are, it is often difficult for us to diagnose the existence of these biases when we ourselves are prone to them. This article uses examples in general management contexts, but I thought it would be highly valuable for investors (such as people on this forum) to read, especially when considering how much of trading and investing is psychologically driven (as opposed to driven by technical analysis or fundamental analysis which investors so often talk about). How often do you think we are prone to making bad decisions due to our own psychological biases? Just some food for thought. Enjoy… http://hbr.org/2011/06/the-big-idea-before-you-make-that-big-decision/ar/1
Thanks, numi. The article is excellent - great content and nice references. I took a decision-making class with professor Thaler and he referenced quite a few papers by Kahneman and Tversky. I would highly recommend reading those as they are both very rigorous and insightful. For those who are interested, I would also highly recommend the book by Max Bazerman and Don Moore “Judgment in Managerial Decision Making” as it covers cognitive biases in depth.