Behavioral Economics Quotes

“Standard economics assumes that we are rational... But, as the results presented in this book (and others) show, we are far less rational in our decision making... Our irrational behaviors arevneither random nor senseless- they are systematic and predictable. We all make the same types of mistakes over and over, because of he basic wiring of our brains.-pg. 239”
― Dan Ariely, Predictably Irrational: The Hidden Forces That Shape Our Decisions

“In fact quite generally, commercial advertising is fundamentally an effort to undermine markets. We should recognize that. If you’ve taken an economics course, you know that markets are supposed to be based on informed consumers making rational choices. You take a look at the first ad you see on television and ask yourself … is that it’s purpose? No it’s not. It’s to create uninformed consumers making irrational choices. And these same institutions run political campaigns. It’s pretty much the same: you have to undermine democracy by trying to get uninformed people to make irrational choices.”
― Noam Chomsky, The Kind of Anarchism I Believe in, and What's Wrong with Libertarians

“Wouldn't economics make a lot more sense if it were based on how people actually behave, instead of how they should behave?”
― Dan Ariely, Predictably Irrational: The Hidden Forces That Shape Our Decisions

“But even when Facebook isn't deliberately exploiting its users, it is exploiting its users—its business model requires it. Even if you distance yourself from Facebook, you still live in the world that Facebook is shaping. Facebook, using our native narcissism and our desire to connect with other people, captured our attention and our behavioral data; it used this attention and data to manipulate our behavior, to the point that nearly half of America began relying on Facebook for news. Then, with the media both reliant on Facebook as a way of reaching readers and powerless against the platform's ability to suck up digital advertising revenue—it was like a paperboy who pocketed all the subscription money—Facebook bent the media's economic model to match its own practices: publications needed to capture attention quickly and consistently trigger high emotional responses to be seen at all. The result, in 2016, was an unending stream of Trump stories, both from the mainstream news and from the fringe outlets that were buoyed by Facebook's algorithm. What began as a way for Zuckerberg to harness collegiate misogyny and self-interest has become the fuel for our whole contemporary nightmare, for a world that fundamentally and systematically misrepresents human needs.”
― Jia Tolentino, Trick Mirror: Reflections on Self-Delusion

“Groups have powerful self-reinforcing mechanisms at work. These can lead to group polarization—a tendency for members of the group to end up in a more extreme position than they started in because they have heard the views repeated frequently.
At the extreme limit of group behavior is groupthink. This occurs when a group makes faulty decisions because group pressures lead to a deterioration of “mental efficiency, reality testing, and moral judgment.” The original work was conducted with reference to the Vietnam War and the Bay of Pigs fiasco. However, it rears its head again and again, whether it is in connection with the Challenger space shuttle disaster or the CIA intelligence failure over the WMD of Saddam Hussein.

Groupthink tends to have eight symptoms:
1 . An illusion of invulnerability. This creates excessive optimism that encourages taking extreme risks. [...]
2. Collective rationalization. Members of the group discount warnings and do not reconsider their assumptions. [...]
3. Belief in inherent morality. Members believe in the rightness of their cause and therefore ignore the ethical or moral consequences of their decisions.
4. Stereotyped views of out-groups. Negative views of “enemy” make effective responses to conflict seem unnecessary. Remember how those who wouldn't go along with the dot-com bubble were dismissed as simply not getting it.
5. Direct pressure on dissenters. Members are under pressure not to express arguments against any of the group’s views.
6. Self-censorship. Doubts and deviations from the perceived group consensus are not expressed.
7. Illusion of unanimity. The majority view and judgments are assumed to be unanimous.
8. "Mind guards" are appointed. Members protect the group and the leader from information that is problematic or contradictory to the group's cohesiveness, view, and/or decisions. This is confirmatory bias writ large.”
― James Montier, The Little Book of Behavioral Investing: How not to be your own worst enemy

“Experienced radiologists who evaluate chest X-rays as “normal” or “abnormal” contradict themselves 20% of the time when they see the same picture on separate occasions”
― Daniel Kahneman, Thinking, Fast and Slow

“Literally, time is money. Starting to save now instead of later lessens the amount you will need to contribute.”
― Coreen T. Sol, CFA

“Yes, it is difficult to believe that we are not entirely rational in our daily decisions and actions. However, by admitting that we are biased, realizing that we should question our choices, and stepping outside of our comfort zone, we are able to open up our eyes to a whole new horizon.”
― Ahmed AlAnsari, The Brand Dependence Model: Identify & Mitigate Your Danger Blocks

“These are all common principles of salesmanship. The most ignorant peddler applies them. Yet the salesman-in-print very often forgets them. He talks about his interest. He blazons a name, as though that was of importance. His phrase is, “Drive people to the stores,” and that is his attitude in everything he says. People can be coaxed but not driven. Whatever they do they do to please themselves. Many fewer mistakes would be made in advertising if these facts were never forgotten.”
― Claude C. Hopkins, Scientific Advertising

“We are neither robotically systematic nor wholly idiotic when making investment decisions. To be sure, we do our best to remain objective and make good decisions, but we are strongly influenced by our cognitive limitations and the cloudy lens through which we see the world. But behavioral approaches, which showcased the limitations of our mental computers, simultaneously gave us the notion that what we consumed mattered greatly.”
― Daniel Crosby, Personal Benchmark: Integrating Behavioral Finance and Investment Management

“If irrational exuberance can bring about financial calamity, then it stands to reason that rational adherence to a set of rules can save our financial lives. It’s not a complex idea, but it’s one that can have profound implications for the personal and financial wellbeing of our families and even our nations. And it all begins with a focus on-you guessed it-ourselves.”
― Daniel Crosby, Personal Benchmark: Integrating Behavioral Finance and Investment Management

“Pop quiz: What is the best predictor of the size of a retirement nest egg? What’s that you say, performance? Wrong! I’m sorry but the correct answer was “deferral rate,” but thanks for playing. The way that goals-based investing increases deferral rates (and thus, wallet share) is by couching investment in terms of personal meaning… Rather than speaking in sterile terms that rob wealth of its holistic meaning, use your goals as the benchmark and see how much easier saving becomes.”
― Daniel Crosby, Personal Benchmark: Integrating Behavioral Finance and Investment Management

“There are at least three significant reasons we resist contemplating our personal financial goals: it can be stress-inducing, we dislike numbers, it is socially taboo, and we are slaves to “right now.”
― Daniel Crosby, Personal Benchmark: Integrating Behavioral Finance and Investment Management

“Despite [the “talking heads” we revere] inability to outperform a dartboard, we continue to look to them and pay them exorbitant salaries. Why? Because they are bold. Surety is baseball, red meat, and the pioneer spirit. Doubt seems wimpy and “Continental.”
― Daniel Crosby, Personal Benchmark: Integrating Behavioral Finance and Investment Management

“Given the complexity of life, the enormity of the decisions we are called upon to make, and most peoples’ unfamiliarity with financial principles, it is much less a question of whether people will simplify the information they process and recall and more a question of how they will simplify.”
― Daniel Crosby, Personal Benchmark: Integrating Behavioral Finance and Investment Management

“Behavioral finance sits at the crossroads of finance, economics, psychology, social psychology, decision-making, science and neurology, to name but a few of the disciplines that make up it’s strange brew.”
― Daniel Crosby, Personal Benchmark: Integrating Behavioral Finance and Investment Management

“The behavior gap is why the average investor meaningfully underperforms the average returns for asset classes over time. Yet, many can’t resist the temptation of irrational behavior during nerve-racking volatility and irrational exuberance.”
― Daniel Crosby, Personal Benchmark: Integrating Behavioral Finance and Investment Management

“[You’ll] learn how to improve your investment experience, increase returns formerly sacrificed to misbehavior, and worry less about “The economy” as you become increasingly focused on “My economy.”
― Daniel Crosby, Personal Benchmark: Integrating Behavioral Finance and Investment Management

“Behavioral engineering in all of its manifestations always degenerates into merciless manipulation. It reduces all (manipulators and manipulated alike) to a deadly "mass effect." The central assumption, that manipulation of individual personalities can achieve uniform behavioral responses, has been exposed as a lie by many species but never with more telling effect than by the Gowachin on Dosadi.
— The Dosadi Papers, BuSab reference”
― Frank Herbert, The Dosadi Experiment

“Experienced radiologists who evaluate chest X-rays as “normal” or “abnormal” contradict themselves 20% of the time when they see the same picture on separate occasions.”
― Danny Kahneman

“The model of the utility of wealth gets the basic psychology of wealth right but to create a better descriptive model they recognize that we had to change our focus from levels of wealth to changes in wealth this may sound like a subtle tweak but switching the focus to changes as opposed to levels is a radical move. The focus on changes because changes or the way humans experience life.”
― Richard Thaler

“... [behavioral economics] has its limits. As policymakers use it to devise programs, it’s becoming clear that behavioral economics is being asked to solve problems it wasn’t meant to address. Indeed, it seems in some cases that behavioral economics is being used as a political expedient, allowing policymakers to avoid painful but more effective solutions rooted in traditional economics.

Behavioral economics should complement, not substitute for, more substantive economic interventions. If traditional economics suggests that we should have a larger price difference between sugar-free and sugared drinks, behavioral economics could suggest whether consumers would respond better to a subsidy on unsweetened drinks or a tax on sugary drinks.

But that’s the most it can do.”
― George Loewenstein

“But if it is crazy to turn down the 100 bets, the logic of Samuelson's argument is just reversed; you should not turn down one! Shlomo and I called this phenomenon "myopic loss aversion". The only way you can ever take 100 attractive bets is by first taking the first one, and it is only thinking about the bet in isolation that fools you into turning it down.”
― Richard H. Thaler, Misbehaving: The Making of Behavioral Economics

“The sheer number of new businesses that fail speaks to the optimism of entrepreneurs to wander down such a gauntlet, and their willingness to believe that norms don't apply to them. But on average, of course, they do.”
― Coreen T. Sol, CFA

“Tread carefully when making assumptions based on representativeness. If it walks like a duck and talks like a duck, it might not be a duck.”
― Coreen T. Sol, CFA

“Money illusion is also why your Uncle John still gives you $50 per year for your birthday. That's the same amount that he's given you since you were born, and it used to be a tidy sum of money back then.”
― Coreen T. Sol, CFA

“Anticipating the pain of regret if the odds don't play out as expected can impel you to play your hand prematurely. This is why a plaintiff may settle for a reduced award rather than take their chances in a court.”
― Coreen T. Sol, CFA

“Ironically, investing in many seemingly safe investment options puts conservative investors at the greatest risk of declining purchasing power.”
― Coreen T. Sol, Unbiased Investor: Reduce Financial Stress and Keep More of Your Money

“Panicking on market drops is for amateurs. Your time is better spent creating and sticking with a good factor portfolio.”
― James Maendel, Factor Investing for Dummies

“In the field of behavioral economics, neoliberalism allows that human behavior often deviates from the model of Homo economicus. The deviations considered, however, focus on the ways in which passions and perceptual distortions fail to maximize utility as the model demands. The model is the ideal: behavioral economics emphasizes the ways in which we fall short of it. The question of whether the model falls short of us is rarely raised.”
― Susan Neiman, Left Is Not Woke