Inside the Investor’s Brain

Last month, we got a terrific response to our posting of the entire first chapter of A Demon of Our Own Design.

I want to start doing this at least once-a-month, and plan on setting up an additional space to discuss the books in more details.

Peterson_high_resolution_cover Today’s book is by Dr. Richard Peterson’s Inside the Investor’s Brain: The Power of Mind Over Money.

Long time readers know that I have been a big fan of books that seek top explain how are brains are wired, and how this hard-wiring frequently sends us astray as investors.

Back in 2005, I wrote a column titled Know Thyself. Because Human nature so often runs counter to successful investing, its important to understand — and resist — many of your baser instincts.

The best book on the topic I have come previously across is Cornell Professor Thomas Gilovich’s How We Know What Isn’t So.  However, that is a bit of an academic work, focusing purely on human psychology. Some people have found it to be a bit dry, and it requires some imagination to apply the lessons there to investing and markets.

Inside the Investor’s Brain suffers none of these detractions. A few things make the book work especially well: 1) The author, Dr. Richard Peterson, is a psychiatrist who specializes in neuro-science studies; 2) Peterson is also a futures trader, so he has first hand experience as to the psychology pitfalls of trading (Peterson is launching a "Quantitative Psychology based Hedge Fund in 2008); 3) By combining these two disciplines, he has been acting as a consultant to large financial firms.

I found the book accessible and easy to read, filled with amusing anecdotes and illustrative examples.

Barron’s had this very laudatory review, stating simply: "IF YOU READ BARRON’S, AND APPARENTLY you do, read this
book."

I would modify that: If you find the intersection of human psychology, markets and investing, than you should find this book rather intriguing.

Whether or not you Humans are capable of circumventing your own wetware in order to obtain alpha (out-performance) has yet to be determined . . .

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Listener Determined Download Prices?

Radiohead

Interesting story about Radiohead’s new release, "In Rainbow’s."

Their pricing scheme for downloads is designed to give the Music Industry — especially major labels — fits. According to their website, IT’S UP TO YOU.

Notes Salon:

"This weekend the band announced that its new album, called "In Rainbows," will
go on sale on Oct. 10. They still haven’t signed with a label, and the album
won’t be available in record stores nor on iTunes or any other online music
shop. You’ll find it only on the band’s site, and if you’re looking for a
digital version, the price is very attractive: Whatever you’d like to pay.

You can pre-order the new album here.
Click to purchase the download and you’re presented with a simple screen at
which you’ve got two boxes to fill in, quantity and price (in pounds). "It’s up
to you," the site says."

For those of you who, like me, prefer the physical media, you have a high priced, rpemium option:

"If you’d like something physical, the band is also selling "In Rainbows" in
something it calls a "discbox," a beautiful package that includes a CD, two
vinyl records, digital files, album artwork, and lyrics booklets. It sells for
40 pounds, about $81 (the price includes shipping anywhere in the world). If
you’ve got a Radiohead superfan in the family — and who among us doesn’t? –
your holiday shopping just got easier."

(Additionally, I see a lot of other Econ bloggers have weighed in on this natural experiment:  Free Exchange, Mankiw Blog, Truth on the Market, Freakonomics, Long Tail & Marginal Revolution . . .)

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