The Science of Fear

日期:2013/08/05

In talking about what I learned in the last 10 years, which I wish had been more, I concentrated on four factors. Everything is deception. Fear creates tremendous non-random underperformance. The purpose of markets is to take from the weak. The cycles are ever-changing (they recently changed again for bond stocks) and the solution is to buy and hold. I quantified several aspects of the fear of underperformance and alluded to a study by Mr. Curve that by selling at the fear point, traders lose 4 percentage points a year. That's big.



I'm reading some books on fear. Namely The Science of Fear by Daniel Gardner. The great praise it received is that it's as good as Gladwell. My goodness, at least it had no references so far to the Expert. However, I came across an idiot reference to one of the contrived Kahneman references that supposedly shows that fear is ubiquitous. The naval research bureau which reached such height with Osborne's stock market work, swings to the other side of the pendulum by supporting the masters of part whole biased answers to contrived question. The Kahneman group asks students: "heads you win 150, tails you lose 100." Would you take it. Amazingly to those who wish to show that rationality don't exist, the students don't take it. With these kinds of ridiculous questions and the choices to the answers are again designed by Pam Alikes to guarantee that the hypothesis will be chosen, the supposed irrationality is built; :"Why Investors Make the Wrong Choice".

What kind of world do we live in when the very rational response of students that they don't have 100 bucks to lose, or their liquidity doesn't permit it relative to frat parties, beer and dates, leads to a whole science of behavioral irrationality which Arnold Zellner tells me is called the promiscuous science around the faculty clubs at Chicago.