Skip to main content

Your Money and Your Brain – Jason Zweig ****

It might seem a book about investing isn’t really suited to a popular science site, but hold on – Jason Zweig’s book is much more than a ‘how to make money on the stock market’ tome. Yes, it does give some lessons for would-be investors, but the subject of the book is much more interesting (with a scientific hat on). In fact the investment advice, when you come to it, is fairly bog standard stuff like the need to investigate a company before buying shares, not just relying on the shares’ track record on the stock exchange. This book is almost back to front. What it really is, is an in-depth exploration of why the way our brains work make us hideously unsuited to playing the stock market.
Before assessing the book as a whole, I do need to clarify one issue that nearly stopped me reading it. There’s an example on page 20 that just doesn’t make any sense. It is supposed to show how people make the wrong assumptions about the evidence they need to make a decision, but unfortunately the way the problem is stated makes the assumed ‘wrong answer’ correct. Zweig has attempted to correct this in the US paperback, but after discussing this with both the author and the academic on whose paper the example is based, it’s clear that the example would probably never be able to usefully show what was required here. So if you read the book and get hung up on the problem of the consultant who says the market rises every time after he predicts it, don’t. It doesn’t work – ignore it!
Once past that issue, the book has fascinating detail about the way different parts of the brain react to the types of stimuli presented to us by stock trading, whether it’s fear, risk, surprise, regret or prediction. By using MRI scans and other technology, Zweig takes us through how the brain reacts under those pressures, making the kinds of decision stock market players have to make and demonstrates not only what happens in the brain, but how our natural responses make us highly unsuited to the whole business. The aim is that we can be aware of these natural faults and overcome them, but the reality is it makes you feel that no one sane would ever have anything to do with these kinds of investments. It has always worried and irritated me when I hear on the news that a stock index has collapsed because traders were worried about something or panicking about something. The financial basis of our institutions shouldn’t be animal, reflexive reaction. Yet Zweig shows this is almost inevitable.
So whether, like me, the impact of the book is to make you think it’s time we did away with stocks and shares and introduced a more reasoned way of financing businesses, or, as Zweig intended, you use this as a book to get insight into the best possible way of investing, there can be no doubt that this is an interesting read and one that is much more about the brain and human response than it is about money. If you have an absolute aversion to matters financial you might find it a little hard going in places, but if, like me, you find business interesting and the human brain wonderful, this book will provide plenty of food for thought.

Paperback:  
Using these links earns us commission at no cost to you
Review by Brian Clegg
Labels:

Comments

Post a Comment

Popular posts from this blog

The Antigravity Enigma - Andrew May ****

Antigravity - the ability to overcome the pull of gravity - has been a fantasy for thousands of years and subject to more scientific (if impractical) fictional representation since H. G. Wells came up with cavorite in The First Men in the Moon . But is it plausible scientifically?  Andrew May does a good job of pulling together three ways of looking at our love affair with antigravity (and the related concept of cancelling inertia) - in science fiction, in physics and in pseudoscience and crankery. As May points out, science fiction is an important starting point as the concept was deployed there well before we had a good enough understanding of gravity to make any sensible scientific stabs at the idea (even though, for instance, Michael Faraday did unsuccessfully experiment with a possible interaction between gravity and electromagnetism). We then get onto the science itself, noting the potential impact on any ideas of antigravity that come from the move from a Newtonian view of a...
Post a Comment
Read more

The World as We Know It - Peter Dear ***

History professor Peter Dear gives us a detailed and reasoned coverage of the development of science as a concept from its origins as natural philosophy, covering the years from the eighteenth to the twentieth century. inclusive If that sounds a little dry, frankly, it is. But if you don't mind a very academic approach, it is certainly interesting. Obviously a major theme running through is the move from largely gentleman natural philosophers (with both implications of that word 'gentleman') to professional academic scientists. What started with clubs for relatively well off men with an interest, when universities did not stray far beyond what was included in mathematics (astronomy, for instance), would become a very different beast. The main scientific subjects that Dear covers are physics and biology - we get, for instance, a lot on the gradual move away from a purely mechanical views of physics - the reason Newton's 'action at a distance' gravity caused such ...
Post a Comment
Read more

It's On You - Nick Chater and George Loewenstein *****

Going on the cover you might think this was a political polemic - and admittedly there's an element of that - but the reason it's so good is quite different. It shows how behavioural economics and social psychology have led us astray by putting the focus way too much on individuals. A particular target is the concept of nudges which (as described in Brainjacking ) have been hugely over-rated. But overall the key problem ties to another psychological concept: framing. Huge kudos to both Nick Chater and George Loewenstein - a behavioural scientist and an economics and psychology professor - for having the guts to take on the flaws in their own earlier work and that of colleagues, because they make clear just how limited and potentially dangerous is the belief that individuals changing their behaviour can solve large-scale problems. The main thesis of the book is that there are two ways to approach the major problems we face - an 'i-frame' where we focus on the individual ...
Post a Comment
Read more