Feb 20, 2020
Let's say you make a choice that had you chosen differently, things would ostensibly have turned out more favourably. Later on, a similar situation comes up and you make the choice you think you should have made previously in the hope that the result you wanted before will come true this time around. This is called counterfactual thinking and it forms the main topic of our discussion in today’s episode. First publicized in a fascinating paper called The Psychology of Preferences, Daniel Kahneman and Amos Tversky explore the abundance of instances where humans employ irrational ‘what if’ thinking in their processing of recently made decisions that resulted in an undesirable outcome. People tend to think back and wish that they had made a different choice, irrationally thinking that if they had, things would have worked out better. This idea, of course, has applications to investing in stocks with particular implications due to the utter randomness of the market. This is a mind-blowing discussion about human irrationality with links to many leading papers that research this principle in relation to different situations. Outside of our main discussion, we also touch on why you should think twice before buying a condo, the utter absurdity of the Robo-Advisor business model, monthly posted DVD accounts and the surprising birth of Netflix, and finally, the ambiguity of Vanguard’s partnering with HarbourVest.
Key Points From This Episode: