Thursday, May 04, 2006

Zombies on the prowl for better investing

Well, it's all confirmed as true. Emotionless investors make better returns than us regular humans.

In a study by Professor George Loewenstein last year at Carnegie Mellon University in Pittsburgh, found that those who had suffered brain damage which impaired emotional responses, were better investors in a small study.

The participants, consisting of normal people and those with some neurological impairment, were tested on their ability to invest. Participants were given $20 to invest, and in each round they could either invest $1, or refrain from investing and pocket the $1. The study found that under the circumstances - consisting of roughly 20 rounds of investing - the impaired individuals ended up with an average of $25.70, vs. $22.80 for the non-impaired. They also invested more often, at 84% of rounds, versus 58% for non-impaired.

Prof. Loewenstein found that the non-impaired often became discouraged if they lost money and avoided investing too often after that. Conversely, those who won too often, often took to sitting out rounds, in the belief of not wanting to "press their luck". The emotionally impaired, it seems, were best able to figure out the odds and continued to press on.

Although this isn't really new information to most savvy investors, it does help to clarify my thinking around this point - please refer to my more recent photograph below.

"The needs of the many outweigh the needs of the few" - Spock


The Confused Capitalist


Anonymous said...

Nice haircut. Who wants to live without emotion? I like your next blog (especially #8 and the last suggestion) better. Tom in Indy

Jay Walker said...

Thanks Tom - yes it would be pretty boring without emotions, wouldn't it ... but more profitable ...


Dave said...

just came across your blog from WSJ referral.

excellent selction of photos to adorn that post ;)

- dave mcclure

Jay Walker said...

Thanks Dave,

you mention a WSJ referral ... what's that? (not the Wall Street Journal?).