Covariation bias is the tendency for people to overestimate the relationship between fearful stimuli and negative outcomes. The classic example in scientific studies is people’s reactions to spiders. Death from [ … ]
Category: Behavioral Finance
Valeant and the Gambler’s Dilemma
If you’ve been paying attention to the financial media in the last few weeks you’ve probably seen the drama surrounding a company named Valeant. In case you’ve been buried in [ … ]
Game Theory Thinking – Mets/Dodgers Edition
Tonight’s Mets vs Dodgers game is going to be an interesting one. The playoff series is tied 1-1, but game 2 was decided in a controversial manner. Chase Utley was [ … ]
Do Markets and Economies Move in Cycles?
A boom/bust theory of the economy and the financial markets doesn’t reflect the dominant environment. Instead, I propose that we think of the economy and the financial markets in terms of a boom/bust/bore cycle.
Is the Junk Bond Market the Next 2008?
Recency bias is a real sonofabitch. After someone goes through a traumatic experience they tend to be shocked into believing that the next big traumatic experience is right around the [ … ]
Interest Rate Hike – It’s Different This Time Edition
One of the points I tried to stress in my book was that each economic cycle is its own unique environment. I find it very helpful to think of the [ … ]
What if There’s no Such Thing as a “Normal” Economy?
Tyler Cowen has a piece in the NY Times from this past weekend discussing the potential that the US economy will never return to “normal”. The article implies that the [ … ]
The History of the Global Equity Portfolio
One of the nice things about thinking of the world in macro terms is that you are less inclined to fall victim to a fallacy of composition. That is, in [ … ]
Why Do Non-Experts Think They Know About Macroeconomics?
Maybe the more relevant question here is why do macroeconomists think they have a monopoly on “macroeconomics” when macroeconomics is actually much broader than just economics?