TDL Brief: The Stock Market
The link between behavioral science and the stock market is always relevant, but the conversation surrounding it becomes increasingly important in times of uncertainty, as seen in the early stages of the coronavirus pandemic. The increased volatility of the market and the feelings of anxiety that come with it can further impact our decisions. Without knowledge of behavioral science principles, such as the cognitive biases that can lead us astray and how to go about overcoming them, we may wind up making the wrong choices for all the wrong reasons.
Of course, our decision-making is not always based solely on logic even in the best of times. There are many factors that can influence the choices we make, often without us even realizing it. As an investor, checking your portfolio frequently might seem like a good way to stay on top of things. Yet, it has been shown to result in hasty, irrational decisions. By understanding the factors that can influence our decisions for the worse, we can learn how to avoid them. When it comes to the stock market, this enables us to make sound choices regarding our investments. Better choices mean better performance, and better performance means less anxiety, which in turn allows us to make better choices … and the cycle continues.
References
- Behavioral Guidance During Market Volatility: Why Managing Our Emotions May Lead To Better Investment Outcomes. PIMCO. PIMCO.com https://www.pimco.com/eu/en/resources/video-library/media/behavioral-science-in-uncertain-times
- Wiles, R. (2020). Emotions Can Mess Up An Investment Plan. Beware of 6 Irrational Ways To Make Decisions. AZCentral. https://www.azcentral.com/story/money/business/consumers/2020/09/20/these-6-irrational-moves-could-disrupt-your-investments/5819319002/
- Hulbert, M. (2020). This is a sure way to make costly investing mistakes in the coronavirus crash. MarketWatch.com. https://www.marketwatch.com/story/this-is-a-sure-way-to-make-costly-investing-mistakes-in-the-coronavirus-crash-2020-03-23
- Graffeo, E. (2021). A majority of investors believe the stock market is in a bubble – and many fear a recession, according to an E*Trade survey. Market Insider. BusinessInsider.com. https://markets.businessinsider.com/news/stocks/stock-market-outlook-bubble-index-survey-recession-fears-risk-etrade-2021-1-1029945009
About the Authors
Dan Pilat
Dan is a Co-Founder and Managing Director at The Decision Lab. He is a bestselling author of Intention - a book he wrote with Wiley on the mindful application of behavioral science in organizations. Dan has a background in organizational decision making, with a BComm in Decision & Information Systems from McGill University. He has worked on enterprise-level behavioral architecture at TD Securities and BMO Capital Markets, where he advised management on the implementation of systems processing billions of dollars per week. Driven by an appetite for the latest in technology, Dan created a course on business intelligence and lectured at McGill University, and has applied behavioral science to topics such as augmented and virtual reality.
Dr. Sekoul Krastev
Sekoul is a Co-Founder and Managing Director at The Decision Lab. He is a bestselling author of Intention - a book he wrote with Wiley on the mindful application of behavioral science in organizations. A decision scientist with a PhD in Decision Neuroscience from McGill University, Sekoul's work has been featured in peer-reviewed journals and has been presented at conferences around the world. Sekoul previously advised management on innovation and engagement strategy at The Boston Consulting Group as well as on online media strategy at Google. He has a deep interest in the applications of behavioral science to new technology and has published on these topics in places such as the Huffington Post and Strategy & Business.
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