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Books on Biases and Heuristics


prunes
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I believe that biases and heuristics greatly influence the stock market. Some of these biases include anchoring (e.g. one's estimate of value being influenced by, or "anchored" to the prevailing trend), the confirmation bias (i.e. the tendency to focus only on information that validates one's hypothesis), and the availability heuristic (i.e. the tendency for our estimates of probabilities of rare events to be swayed by how easily examples can be brought to mind).

 

Dave Dreman talks about these biases a bit in New Contrarian Investment strategies but his treatment is short and serves primarily as a lead-in for the rest of the book. I was wondering what books give more in-depth treatment of these psychological biases, especially in the context of behavioral investing.

 

Also, if any of you find this topic interesting, the following essay by Eliezer Yudkowsky is pertinent and very interesting: http://singinst.org/upload/cognitive-biases.pdf, although it is more focused to existential risk.

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My personal favs are Max Bazerman's Judgment in Managerial Decision Making (this talks about not only biases but how they encroach on decision making and how you can make better decisions) and Mauboussin's two books: Think Twice and More Than You Know: Finding Financial Wisdom in Unconventional Places.

 

I'm excited to read Bazerman's new book coming out in March called Blind Spots: Why We Fail to Do What's Right and What to Do about It.

 

I'd also add: Yes!: 50 Scientifically Proven Ways to Be Persuasive (but i liked Influence better); Dan Ariely's other book The Upside of Irrationality: The Unexpected Benefits of Defying Logic at Work and at Home; Jonah Lehrer's How We Decide; and Nudge is also quite good.

 

I have a comprehensive behaviorial economics reading list here that might interest you.

 

Of course, I also recommend reading Farnam Street.

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