![]() ![]() But it takes real understanding to appreciate that clean, cheap products in investing are usually better than expensive and complicated ones: Mostly we’d be better off ignoring them and sticking to a very simple plan. ![]() They are analysed by well-paid and clever-sounding adults who read charts, follow company results, and insist that investors should put 10% into palladium futures or Korean bonds. Dumb money is smart moneyĪs investors, we should try not to assume that complicated products or explanations are always required, let alone superior.įinancial markets are complex systems. Similarly, if you’re an investor and you read or watch apparently informed market pundits, you’ll soon believe the FTSE fell by 0.2% because German government bonds are rising in reaction to saber-rattling in Iran, or similar nonsense.īefore you know it you’re trading noise like everyone else. Importantly, we continue to over-imitate as adults.įor example, if you don’t know anything about cars and you watch a mechanic check various parts of your engine before topping up your oil, there’s a good chance you’ll perform the same needless checks when you fix the oil yourself. If the pipe was removed – disconnecting the two set-ups – the kids correctly assumed the adult was wasting time on the other toy, and went straight to the one with the prize.If researchers joined two toys together with a section of pipe and did dumb things on one before taking the prize from the other, the kids copied them.It seems that kids who first see an adult solve the puzzle are assuming the toys are more complex than they appear – that there must be hidden mechanisms that explain why these seemingly dumb actions are required: However if kids first saw an adult doing dumb things like waving feathers, removing pointless struts, or tapping a box with a pencil before opening the door to the prize, the kids copied the redundant acts, too. Two of the entirely legal child-tormenting devicesĭerek found that if just given the puzzle without adult guidance, the kids set about finding the quickest way to extract the prize. It involves training four-year old kids to ignore witless adults, and then recording how the kids later extracted a prize from various toy-based puzzles: The gist was that as kids we learn by imitating other people, but – unlike chimpanzees, notably – we’re sometimes prone to copying redundant activities, too.ĭerek Lyons spoke about this research. One session highlighted ‘over-imitation’ in children. ![]() Anthropologists, sociologists, and various other –ologists discussed whether ideas and language evolve in a similar way to genes. ![]() I spent part of this week at Culture Evolves, a conference in London organised by The Royal Society. Our bias towards trusting complex solutions seems hardwired from birth. In reality, the best answer to most stock market questions is: “I don’t know”. What I do think though is that complex answers are more about fitting our idea of what’s a suitable class of explanation, rather than about being right. Now I’m not here to say that markets or economies aren’t complicated. Okay, nobody wrote that to me but that’s how many people treat the market and economics. “What rot! I don’t subscribe to Monevator to read what my six-year old could tell me! I want to hear about sovereign debt defaults, plunging leading indicators, and a death cross price pattern!” I argued recently that the stock market had fallen lately because it had gone up a lot, fast. There are more complex ways to put it, but as this post makes the case for simplicity let’s start as we mean to go on. ![]()
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