Snap Judgment: When to Trust Your Instincts, When to Ignore Them, and How to Avoid Making Big Mistakes with Your Money
Product Author Bios
DAVID E. ADLER is the producer of the forthcoming PBS NOVA documentary on behavioral finance and is a contributing high-net-worth writer for Financial Planning magazine, the leading industry magazine for financial planners. He is coeditor of the anthology Understanding American Economic Decline (Cambridge University Press). Adler has written for Barron’s, Institutional Investor, Psychology Today, and The New Republic. He was recently awarded a grant by the CFA Institute Research Foundation to conduct a study of tax awareness in investment decision-making by wealth managers. Educated at Oxford University and Columbia University, he holds an M.A. in economics from Columbia.
"Adler’s argument is illuminating and reveals that, when it comes to investing, we should always have second thoughts about our first impressions."
WHY YOUR INSTINCTS CAN BE YOUR #1 ENEMY—AND HOW TO DEFEAT THEM!
“David Adler’s Snap Judgment is a well-written, entertaining review of human action in risky situations, including stock market behavior and other risk-facing situations. In particular, Adler recounts the conclusions of many practitioners and behavioral finance scholars who have studied such matters. This book is well worth reading, both for its practical advice for the novice and its wealth of illustrations for the pro.”
— Harry Markowitz, Nobel Laureate in Economics and father of modern portfolio theory
“David Adler has done a great public service by translating a dazzling array of research in economics and finance into practical terms that anyone can understand and profit from. This book should be required reading for every investor.”
— Andrew W. Lo, Professor of Finance, MIT Sloan School of Management
“Investing and managing your money on the basis of emotion, instincts, and intuition is a road straight to the poorhouse. This book teaches you why—and how to rid yourself of the irrational impulses that torment your portfolio.”
— Peter Navarro, bestselling author of If It’s Raining in Brazil, Buy Starbucks and The Coming China Wars
“Adler’s book makes a compelling case, illustrated through engaging examples, that the mind and the purse are well served by the triumph of analytic intelligence over intuition.”
— Gary Loveman, Chairman, President, & CEO, Harrah’s Entertainment, Inc.
Table of Contents
Acknowledgments . . . ix
About the Author . . . xi
Introduction . . . 1
Part I: The Psychology of Financial Decisions
Chapter 1. Money Is a Drug . . . 15
Chapter 2. Buy High, Sell Low: The Basic Instinct Driven Error of Investing . . . 21
Chapter 3. More About Stocks: Dividends–Behavioral Ways to Play the Dividend Game . . . 27
Chapter 4. Bonds: Malign Neglect . . . 33
Chapter 5. The Psychology of Why People (Used to) Hate Annuities . . . 39
Chapter 6. The Psychology of Selecting Mutual Funds . . . 47
Chapter 7. Building Your Portfolio the Behavioral Economics Way . . . 55
Chapter 8. Risk Tolerance and Investing . . . 61
Chapter 9. Deconstructing Stock Analysts . . . 67
Chapter 10. Value Investing: Behavioral Origins . . . 73
Chapter 11. Timing Stocks . . . 77
Chapter 12. Momentum . . . 83
Chapter 13. The Ultimate Anomaly: Trusting Your Gut in Finance . . . 91
Part II: The Track, the Stock Market, and Other Types of Gambling
Chapter 14. Let’s Talk about Linda: More about Our Intuition . . . 95
Chapter 15. Why Investors Bet on Long-Shot Horses . .109
Chapter 16. Gambling Continued: Stories We Tell Ourselves . . . 113
Chapter 17. Fourth and Ten: Insights into NFL (and Corporate) Decision Making . . . 119
Chapter 18. Football Stories, Continued: The NFL Draft . . . 125
Chapter 19. The Inner Game of Tennis, Revisited . . . 131
Chapter 20. How to Make Money Gambling: Behavioral Insights . . .135
Chapter 21. The Truth About Coin Tosses: They Aren’t Fair . . . 143
Part III: Personal Decisions: Personal Safety, Personal Finance, and Health Choices
Chapter 22. Personal Security: Assessing Danger . . . 151
Chapter 23. Credit Card Stories: Beating Your Credit Card Charges Using Behavioral Economics . . . 155
Chapter 24. Snap Judgment and Social Security: When Should You Claim It? . . .163
Chapter 25. How Patients Think Irrationally . . . 167
Chapter 26. Health Insurance Decisions . . . 173
Chapter 27. Car Accidents . . . 177
Part IV: CEO Behavior
Chapter 28. Strategic “Styles” . . . 183
Chapter 29. CEO Hubris . . . 189
Chapter 30. Firing CEOs . . . 195
Chapter 31. Using CEO Behavior for Investing . . . 197
Chapter 32. Wall Street CEOs . . . 199
Part V: Psychology and the Credit Crisis
Chapter 33. Background: Bubbles and When They Explode . . . 207
Chapter 34. Fear and Loathing in Ft. Lauderdale . . . 213
Chapter 35 Follow the Mortgage . . . 219
Chapter 36. Risky Business: Bank Runs . . . 229
Chapter 37. Euphoria, Fear, and Economics: A Psychological Autopsy of the Crisis . . . 235
Part VI: Conclusion: Debiasing
Chapter 38. How Not to Blink in the Face of Financial Panic . . . 249
Chapter 39. A Summing Up: Twilight of the Gods . . . 261
Index . . . 265
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