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Inside the Investor's Brain
Book

Inside the Investor's Brain

The Power of Mind Over Money

Richard L. Peterson
Wiley, 2007
First Edition: 2007
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Editorial Rating

8

Qualities

  • Applicable

Recommendation

Richard L. Peterson’s book is riveting, useful and, at times, poignant and funny. Peterson discusses a broad range of emotional and cognitive factors that influence investing. Some are common and will apply to all readers, but others are so subtle that they are sure to surprise even experienced investors. Peterson synthesizes and summarizes neuropsychology and behavioral studies, explains them in clear prose and illustrates them with examples drawn from investors’ lives – and sometimes from their disasters. getAbstract recommends this work to readers interested in behavioral economics or in improving their investment practices.

Summary

The Roots of Your Financial Decisions

You have a solid education in finance and investment. You can rationally evaluate the risks and the potential payoffs in any given situation – but do you act upon your knowledge? If you’re like most people, the answer is “sometimes.” Unfortunately, because emotions subtly color your view of the world, you may not even be able to tell when they’re influencing you. History is full of rational, intelligent people who got into trouble with money. Isaac Newton speculated in stocks. Mark Twain caught the “silver fever” that infected the American West. Both men lost fortunes, even though Twain, at least, had made a plan getting out of the market.

If towering intellects can make huge financial fumbles, how can you avoid such mistakes? The emerging field of neuroscience provides practical lessons. It can help you understand how you make decisions, especially stressful ones that involve financial gain and loss. It explains that “psychological biases” lead most investors – including professionals – astray. They don’t beat the market; they rarely even match it. To do better, you have three options:

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About the Author

Richard L. Peterson is an associate editor at The Journal of Behavioral Finance and a managing partner of Market Psychology Consulting.

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