Behavioral and Market Anomalies aka Your Lizard Brain & Your Money © Terence C. Burnham ...

48 Pages·2010·0.77 MB·English

by  Terry Burnham

Behavioral and Market Anomalies
aka Your Lizard Brain & Your Money
© Terence C. Burnham
Director of Economics
Acadian Asset Management
October 2010
2
Lizard Brains & Money
I. What is a Lizard Brain?
II. All People Have “Lizard Brains”
III. Our Lizard Brains Cost Us Money
IV. How to W.I.N.
3
The Lizard Brain
Lizard Brain
Prefrontal
cortex
4
Lizard vs. Pre-frontal Cortex
• Pre-frontal cortex, rational, small,
apparent, newer.
• Lizard Brain, emotional, large, hidden,
older.
5
Lizard characteristics
• Powerful:
– Many (most?) decisions are made by the
lizard brain.
– My gut told me to stay away
– Just didn’t get the right feel
• Opaque
– Difficult to understand the source or reason
• Impossible to turn off
– Activated automatically
6
Take Home Message I
• There is more than
one you.
• Pre-frontal cortex –
rational, executive
functions, human
• Lizard Brain –
emotional,
animalistic.
7
Lizard Brains & Money
I. What is a Lizard Brain?
II. All People Have “Lizard Brains”
III. Our Lizard Brains Cost Us Money
IV. How to W.I.N.
8
The Lizard Brain
Lizard Brain
Prefrontal
cortex
9
Chinese Baby Puzzle
• Assume:
– Every family keeps having babies until they have a
boy.
– Exactly 50% chance that a baby will be a boy.
• What % of the babies are boys.
• A) more than 50% boys
• B) 50% boys
• C) less than 50% boys
• Hint:
• 1/2 of families: 1 boy, 0 girls
• 1/4 of families: 1 boy, 1 girl
• 1/8 of families: 1 boy, 2 girls
10