What Investors Can Learn From Food

Our eating habits are susceptible to biases and manipulation -- just like our investing decisions.

At one time or another, nearly all of us make a blunder of such monumental proportions that we ask ourselves, What was I thinking? Perhaps we relaxed our price discipline, or we let a stock holding get bigger than it should have been because things seemed to be going so well for the company. Or we exposed ourselves to risks that we’d been warning others about for years.

The culprit behind many of our sorriest decisions turns out to be our suscep­tibility to a wide range of behavioral biases that can short-circuit rational thinking. We lock on recent events. We follow the crowd. We become overconfident. We ignore evidence that doesn’t conform to our beliefs or expectations. The answer to the question “What was I thinking?” is most likely, “I wasn’t.”

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John Heins
Contributing Editor, Kiplinger's Personal Finance