Tyler Cowen is no fan of behavioral economics. He writes in Average Is Over: Powering America Beyond the Age of the Great Stagnation:
Behavioral economists themselves suffer from a lot of the same flaw that plagued the pre-computer grandmasters. They are looking for behavioral theories that are too elegant, too simple or too intuitive, such as the abstract strictures of mathematical decision theory.*
In the book Cowen looks at the lessons we have learned about decision making from studies of chess grandmasters. Or more importantly what we have learned about human decision making when comparing their behavior to now superior, computer programs. The fact is that human intuition is flawed and Cowen notes how it plays itself out in the workplace. The five insights Cowen writes about are also highly relevant to investing as well. Cowen writes:
- Human strengths and weaknesses are surprisingly regular and predictable.
- Be skeptical of the elegant and intuitive theory.
- It’s harder to get outside your own head than you think.
- Revel in messiness.
- We can learn.
Learning in Cowen’s world requires a directed effort between both machine and man. This is a key theme in the book.** Anyone who has invested for anything longer than a market cycle recognizes that the world of investing is nothing if not messy. If you cannot embrace that messiness and try to advance your knowledge and better understand your behaviors over time you are destined for results like these. The hopeful thing Cowen notes is that we can learn. So try to get out of your own head, embrace the tools out there and be skeptical of anyone who say they have all the answers.
*p. 109-100, Average Is Over: Powering America Beyond the Age of the Great Stagnation.
**For an extended look at Average Is Over check out this post by Shane Parrish over at Farnam Street.