Through this course, you will learn how individuals and firms make financial decisions, and how those decisions might deviate from those predicted by traditional financial or economic theory. We will explore the nature of these biases and their origins, using insights from psychology, neurosciences and experimental economics on how the human mind works. From these biases, you will be able to examine how the insights of behavioral finance complement the traditional finance paradigm. We also look at the micro and macro biases. Finally, we will explore how these insights describe more complicated topics such as fat tail events and financial crises.
Psychographic models 3
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Del curso dictado por Indian School of Business
Behavioral Investing
77 calificaciones
Indian School of Business
77 calificaciones
Curso 3 de 5 en SpecializationFinancial Markets and Investment Strategy
De la lección
Psychographic models in Finance
This module discusses the 3 psychographic models in behavioral finance. After finishing this module you will be able to explain the three psychographic models and differentiate between them.
Conoce a los instructores
Vaidya NathanLecturer
Finance
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Learning outcomes, after completing this video,
you'll be able to explain the eight way model.
Learn how to classify investors along three personality dimensions,
quixotic versus pragmatist, framer versus integrator, and reflector versus mature.
Understand all the behavioral biases discussed so far, and correspond that
to each personality dimensions that are explained using the eight way model.
So we spoke about in the lecture before last, we spoke about the first
psychographic models which is along two dimensions, active and passive investors.
Then we spoke about psychographic models which are along, if you would like
two axes, and there were four different types of psychographic models.
Now we move on to a class of models which I kind of define it myself and
give some quixotic names.
So in more than three dimensions, and therefore the there are eight
investor personality types in this particular psychographic model.
And what we will do is discuss this model and
match this up with the investor biases, the behavioral investment biases
that we spoke about earlier, the 20 yard biases that we spoke about.
So we first identify three investor personality dimensions.
The first one what I call as the quixotic versus the pragmatist.
The second is the framer versus the integrator.
The third one is the reflector versus what I call for
lack of a better word as mature, reflector versus mature.
So there are eight different possible investor personality types.
You can call them as quixotic framer reflector,
quixotic framer mature, quixotic integrator realistic,
quixotic integrator mature, quixotic integrator reflector,
quixotic integrator mature, and so on.
Pragmatic framer reflector,
pragmatic framer mature,
pragmatic integrator reflector,
and pragmatic integrator mature.
I hope I have done all the eight possible types,
because we are splitting them along three dimensions of two different types each.
So two ways to three eight different times.
So the first class, and the first axis if you would like the x axis
which is the quixotic versus the pragmatic.
So people wo fall or investors who fall at the quixotic end of
the QP spectrum as you would like, quixotic pragmatic spectrum and
to quixotics tend to overestimate their investment abilities.
They dislike too much optimism about the capital markets like in that iconic story.
They seek out information that kind of reaffirms their view.
They don't seek out information that contradicts their views.
They hopefully discern patterns that none exist
like windmills as, as enemies to be slaid.
And they believe that, that above average market acumen gives them
a very exaggerated degree of control on the investment outcomes.
Often they are pretty disinclined towards very thorough research and
they can fall prey to speculative market facts.
Quixotics can be subject to the following biases.
And I'm trying to map them to the 20 odd biases that we spoke about in the initial
lectures.
So they could have overconfidence bias,
they could have optimism bias, availability bias.
They could have self-attribution bias, illusion of control bias,
confirmation bias, recency bias and representativeness bias.
Pragmatist on the other hand display a very realistic grasp of their own
skills and limitations as investors unlike quixotics.
They're not too confident about the capital markets outcome and
the demonstrate a very healthy dose of skepticism regarding their own investment
abilities and the possibility of financial markets to close up prices.
They understand that investing is a probabilistic undertaking and
they do search to validate the abilities.
And of course,
also to check the abilities to make sure that they're on the right track.
Back my design investors who are typically not susceptible to all the biases that
quixotics are prone to which we discussed earlier.
The second axis the y axis if you like is the framing versus the integrator axis.
So framers on the y axis top of the y axis framers try to evaluate each
of the investments through a particular distinct lens and
they don't consider how each investment fits into an overall portfolio plan.
They're too rigid in their mental approach to analyzing investor problems and
they do not contemplate the exogenities that can happen.
The famous portfolio appears to comprise disassociated pots of money,
rather than a composite of complementary or inter-related investments.
Framers also subconsciously kind of anchor their estimates,
and did the estimate of the market, our security price levels clinging unto
pretty arbitrary purchase points which leads to bias in the future calculation.
Integrators on the other hand are unlike framers, are characterized by an ability
to contemplate a very broad context and it can also contemplate externalities.
They correctly and rightly view that portfolios have systems
who's components can interact and balance one another.
Integrators understand the performance correlations between various financial
instruments and structure their portfolios according.
So they're flexible in their approach to market and price and
security price levels.
Framers maybe susceptible some of the biases that we spoke about earlier,
in the earlier lectures for example, they could be susceptible to anchoring bias.
The could be susceptible to conservatism, mental accounting definitely because they
segregate the parts of money, framing bias and ambiguity bias.
Investors who are integrators are typically
not susceptible to any other those biases that framers tend to be prone to.
The z axis, the third axis is what I call is the deflecting versus the mature axis.
So deflectors have trouble
living with the consequences of the investment decisions that they make and
they have difficulty taking action to rectify those investment behaviors.
They tend to justify and rationalize incorrect actions and
hesitate to own up to decisions that have not worked beneficially.
They also suffer from decision paralysis because they dread
the sensation of regret.
Because when something goes wrong and let's say,
per chance you were to miscalculate something reflectors
tend to have a lot of regret and they hate that feeling of regret.
And therefore tend to make sure that they don't take decisions
which makes them to regret later, and therefore procrastinate.
Matures have, the other end of the z spectrum, they matures.
The matures have less trouble coming in terms with the consequences of their
investment choices.
They don't tend to scramble for excuses to justify incorrect actions,
and they assume responsibility and take responsibility for their mistakes.
Matures also have a far easier time than deflectors with decision making under
pressure because they don't experience regret as acutely as the reflectors do.
They don't reflect on the mistakes too much and
therefore don't experience regret too much.
And therefore, they don't dread decision making and
the consequent if at all that happens.
You don't dread that ahead of time.
Reflectors may be susceptible to some of these biases like cognitive dissonance,
they may have huge loss aversion.
Get even [INAUDIBLE] for instance.
They may have a dormant bias, self control bias,
a regret bias, a status quo bias and a hindsight bias.
Mature investors on the other hand, whom I call on
the z axis matures are typically not susceptible
to the biases that at the other end of the spectrum guys have.
So in terms of the advice that should be offered to each of these personality
types or the advice that you should give yourself as an individual investor,
depends on the personality continuum that is there.
For instance, are you quixotic investor or are you a pragmatic investor?
Are you a framer or desired integrator?
Are you a reflector, who has difficulty making decisions and
has a lot of regret versus somebody who's extremely mature, and can
easily come in terms with the consequences of one so investment decisions.
Now let's say that you find that
you are a quixotic framer,
mature kind of investor.
Let's say, you're a quixotic framer and reflector kind of investor.
So they are susceptible to essentially three negative aspects of
the three continuums of this quixotic framer and deflector.
Then you need to heed the advice of each of the three quixotic personality type,
then you don't have to worry about the others [INAUDIBLE]
mature investors as opposed to a reflector.
So you don't have to worry about that,
you just have to worry about trying to be more pragmatic rather than being quixotic.
So other personality types follow the same scheme of things.
If you are a quixotic,
let's first try to see what other kind of things that you should be looking at,
and what are the kind of advice you should be giving yourself.
And if you're a financial advisor to your client,
you find that the client is let's say, a quixotic.
What kind of advice do you need to give your client or your advisor?
So quixotics need to make sure that they do fundamental research on the investments
and ask some really hard questions before making any investment decisions.
They should seek out information that may be contrary to their beliefs.
So if an individual investor is quixotic, then you need to basically seek out
information that is contrary to your own beliefs.
You need to be a little more skeptical about an investment's
performance prospect, and not overestimate your own market savvy.
You don't have as much, none of us has as much much control as we
think we do over the outcomes of our investments.
In fact, even those most accomplished investors can not control the markets.
Things can and do wrong in investment as they do as they happen in life.
So if you're a quixotic investor,and you're aware of that,
you'll be a better investor for it.
The second continuum or the y axis is actually the framer versus the integrator.
So if you're a framer, one of the advice that you should be giving yourself is
that you need to keep the broader frame of mind, i.e.
The big portfolio picture or as they say, the 30,000 bird's eye view,
than the worm's eye view of when you're making investment decisions.
So don't view your investments in unique accounts
unless they help you achieve your investment goals.
If you do view your investments in unique accounts, try to make sure that those
investments are not correlated or very highly correlated with each other.
Try to maintain an aggregated view of your portfolio and don't evaluate
an investment or a potential investment in isolation from that view.
You need to learn to be more flexible in estimating the value or
the direction of market or security prices.
Be aware that investing can be an ambiguous undertaking, and that
seeking professional guidance is essential to reaching long term financial goals.
The third quantity on the z axis,
which is essentially the reflector was the mature investor.
So if you're a reflector, you need to know that when you make a mistake,
you need to acknowledge it.
So if I'm a reflector and if I identify myself as a reflector,
then if I make a mistake I need to acknowledge it.
And then apply the lessons learned to my next investment experience.
So I shouldn't be rationalizing my behavior or
making excuses as a reflector.
So instead of recalling the rational behind, so what I should be doing is
basically just recall the rationale behind the investment decision that I made.
Maybe write it down, write down the reasons if necessary.
And when an investment doesn't perform well or as expected than I
need to revisit the basis for making those investment decisions.
As a reflector, I shouldn't dwell too much on the losses,
because they will happen, losses do happen.
But the best of investors have loses and just that they learn
from those mistakes and become a better investor overtime.
The best action to take as if I'm going to reflect this to sell and
redeploy those assets to better use and learn from the errors.
And that's probably the only way to becoming a better investor as you
grow up and as you mature as an investor you learn from your mistakes and
you become better over time.
If let's say, I'm having an extra personality type which is to say
pragmatist, stake integrator and mature.
That's the best combination to have.
So if let's say, I'm a pragmatic, I'm an integrator,
pragmatic meaning I'm pretty realistic, I'm not quixotic, I'm an integrator.
I don't look at investments as silos, I basically integrate them and
have the bird's eye view of the investment goals.
And I make sure I don't reflect too much on it I don't have too much regret.
And I'm not afraid of taking positions, I know that losses happen, and
I'm happy to take those decisions and learn along the way.
So if I'm somebody who was that type,
who is basically a pragmatists integrator, and mature or
if you are a pragmatic investor, an indignitor and a mature investor,
then you don't have to necessarily go to any of the bias that we spoke about.
The 20 biases that he spoke about,
because your personality doesn't really dispose you toward investment.
Investment behavioral types of biases in investments.
So all you need to do is basically just diligently heed your
pragmatic integrity and mature instincts that you have already and
you should do extremely well in your investment decision making.
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