Daniel Kahneman is a nobel laureate is an eponymous name in the field of behavioral economics. He was a pyschologist by trade and won the Nobel Prize for his insights on cognitive psychology, and in particular behavior under uncertainty. He also had a immense influence on Richard Thaler another founding father of the field of behavioral economics and last year’s Nobel Prize winner for economics.
Kahneman was speaking at the Morningstar Investment Conferenceand here are some nuggets of wisdom curated from Twitterverse.
“Admitting that you don’t know is a very healthy step” -Daniel Kahneman. Talking about what a stock or the market is going to do. #MICUS— Ryan Weichman, CFA, CFP® (@RyanWeichman) June 12, 2018
Daniel Kahneman says unsystematic “noise” in making an investment decision could be more important than systematic (market) risk. Algorithms give the same answers to the same inputs; people don’t. We should put more weight on reducing the noise in decision making. #MICUS pic.twitter.com/3j9MBdDk6D— Mike Barad (@MikeBarad) June 12, 2018
“We don’t put enough weight on noise reduction.” Daniel Kahneman #MICUS— Bob Seawright (@RPSeawright) June 12, 2018
Algorithms give you the same response. People don’t. - Daniel Kahneman #MICUS— Nadine Youssef (@nadinenyoussef) June 12, 2018
1. Don’t Trust People, Trust Algorithms— TraderJanie aka Jane Fox (@Quantitrader) June 12, 2018
Whether it’s predicting parole violators and bail jumpers or who will succeed as a research analyst, algorithms tend to be preferable to independent human judgment.
2. Take the Broad View— TraderJanie aka Jane Fox (@Quantitrader) June 12, 2018
Don’t view each problem in isolation.
“The single best advice we have in framing is broad framing,” he said. “See the decision as a member of a class of decisions that you’ll probably have to take.”
3. Test for Regret— TraderJanie aka Jane Fox (@Quantitrader) June 12, 2018
“Regret is probably the greatest enemy of good decision making in personal finance,” Kahneman said.
4. Seek Out Good Advice— TraderJanie aka Jane Fox (@Quantitrader) June 12, 2018
Part of getting a wide-ranging perspective is to cultivate curiosity and to seek out guidance.
So who is the ideal adviser? “A person who likes you and doesn’t care about your feelings,” Kahneman said.
On artifical intellignece
They asked Nobel laureate Daniel Kahneman about artificial intelligence and wealth management at the Morningstar conference this morning...— Downtown Josh Brown (@ReformedBroker) June 12, 2018
“Soft contact is essential. Financial advisors will be around long after the last radiologist is replaced"
On the financial advice industry
“I think that the conversation between the advisor and the client is an educational opportunity...so that client can make an informed commitment about what might happen...it’s like a vaccine,” Nobel Laureate #DanielKahneman on advisor & client relationship #MICUS @CitywireUSA— Vicky Ge Huang (@Vlajournaliste) June 12, 2018
On optimism and pessimism
Amos Tversky was his lifelong friend and partner in crime.
“I am a pessimist and tend to focus on loss aversion. [Amos Tversky] was an optimist who focused on lost opportunity.” Daniel Kahneman #MICUS— Bob Seawright (@RPSeawright) June 12, 2018
“Regret itself is not a rational emotion to me but it’s a good question/criterion for ppl to consider how to minimize it...For most ppl, even if they know what the wealth maximizing solution is, that might not be the best solution for them,” #DanielKahneman #MICUS @CitywireUSA— Vicky Ge Huang (@Vlajournaliste) June 12, 2018
Daniel Kahneman says, “I speak a lot about regret.” So does my mother! #MICUS— Mike Barad (@MikeBarad) June 12, 2018
“Psychology has been addicted to showy one-liners.” Daniel Kahneman #MICUS— Bob Seawright (@RPSeawright) June 12, 2018
"Experience increases the #confidence with which people hold their ideas, but not necessarily the accuracy of those ideas. #Expertise requires a particular kind of experience, one that exists in a context that gives regular feedback, that is effectively testable." Daniel Kahneman— Abhijit Bhaduri (@AbhijitBhaduri) June 12, 2018