Pop Investing: The Optimism Puzzle
This week TIME magazine’s cover story highlighted a topic of particular interest to investors and their advisors: the optimism bias. In short, humans tend to be more optimistic than realistic, which leads us to make certain cognitive errors. When confronted with the fact that 1 in 2 marriages end in divorce, we nevertheless tend to think our own marriage is likely to succeed. When applied to investing, habitually overestimating our chances of success is yet another aspect of human psychology hindering our ability to impartially assess financial risk.
Read the full article by Mark Pearlman here.