Techno-Psych: Perception, Remembering a First Date, and Money

September 9, 2021

Navigate to “Investor Memory of Past Performance Is Positively Biased and Predicts Overconfidence.” Download the PDF of the complete technical paper at this link. What will you find? Scientific verification of a truism; specifically, people remember good times and embellish those memory with sprinkles.

The write up explains:

First, we find that investors’ memories for past performance are positively biased. They tend to recall returns as better than achieved and are more likely to recall winners than losers. No published paper has shown these effects with investors. Second, we find that these positive memory biases are associated with overconfidence and trading frequency. Third, we validated a new methodology for reducing overconfidence and trading frequency by exposing investors to their past returns.

The issue at hand is investors who know they are financial poobahs. Mix this distortion of reality with technology and what does one get? My answer to this question is, “NFTs for burned Banksy art.”

The best line in the academic study, in my view, is:

Overconfidence is hazardous to your wealth.

Who knew? My answer is the 2004 paper called “Overconfidence and the Big Five.” I also think my 89-year-old great grandmother who told me when I was 13, “Don’t be over confident.”

I wonder if the Facebook artificial intelligence wizards were a bit too overconfident in the company’s smart software. There was, if I recall, a question about metatagging a human as a gorilla.

Stephen E Arnold, September 9, 2021

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