The Psychology of Money - Chapter 11 and 12

Chapter 11- Reasonable > Rational

Reasonable = we think its right weather is true or not.

Rational = math, facts and science.

I think that the point of this chapter is that we will usually make decisions seem reasonable to us. We also will make the decisions that make us feel comfortable.

Julius Wagner-Jauregg was a scientist that fought a mental disease by giving his patients other sickness that gave them a fever. This worked. Fevers work to help us fight. He won a Nobel Prize in medicine in 1927. He is one of the only people in history who recognized fever’s role in fighting infection and prescribed to treat.

Did this science ever go anywhere. No! We do not want to be in pain even when it could be helping us. Now the second we get a small fever we go right to the medicine to lower it.

From the author bring this back to finance. We do not like to be in pain or have uncertainty.

“Most forecasts about where the economy is headed, & the stock market are heading next is terrible, but making forecasts is reasonable.”

Chapter 12- Surprise!

“The further back in history you look, the more general your takeaways should be. General things like people’s relationship to greed and fear, how they behave under stress, and how they respond to incentives tend to be stable in time. The history of money is useful for that kind of stuff.”

This was a short chapter pointing out that history is always changing and its hard to make money decisions based on history.

I have tried to time the market based on historical trends and I am usually wrong. I do usually get surprised by the change. However I do think there are the some strong trends taht we can rely on that have played out a lot over history. Just don;t be too surprised when it changes.

Posted Using InLeo Alpha