Dr. Jekyll vs Mr. Hyde

Many investors believe they are Dr. Jekyll, but research confirms that Mr. Hyde lives within each of them.

As researchers say, we humans struggle to assess the “beast” that lives within each of us, and controlling it during emotional stress is almost impossible (I think this is not news for devout Christians).

The table below presents the research findings on how differently people assess themselves in a calm versus an aroused state (I tried to choose the lightest table; more results can be found in the source below).

This behavioral aspect is directly related to investment activities. Emotions such as “fear” or “bravery,” which can turn into recklessness, significantly impact the overall efficiency of the investment market and open arbitrage windows for cooler-headed investors.

Source:
Predictably Irrational: The Hidden Forces That Shape Our Decisions
By Dan Ariely