Rats, Coin Flips, Roulette, and Why Your Monkey Brain Makes You Lose Money
Aka - are you smarter than a rodent???
After an epic run of bond posts, this week we are going to go with some fun behavioral finance stories to better help you understand why your monkey brain makes you lose money.
Behavioral finance/psychology is a fun topic. Once you start understanding how our illogical internal ‘higher level intellect’ that was developed over millenia to help us survive, is now a huge hinderance to your success…well hopefully it helps you recognize the fallacies and course correct…but at a minimum when you look back at bad decisions you at least know why you made them.
This week’s post will be 3 fun anecdotes I stumbled upon over the last month doing various reading that all relate to why people constantly make poor decisions due to overthinking and not understanding probability. The result is making negative EV decisions…even if you are told the exact odds and outcomes.
[Note, EV = expected value. The expected value is like the expected outcome of a game. For example, if you dice
First up, we cover how rats will beat humans in figuring out EV positive decisions. Then how people, even when given the odds that tell them what to do, will convince themselves to act irrationally in a coin flip game. And lastly, how casinos found a way to prey on people’s behavioral fallacies to make money in roulette.
