Investor psychology:
is it just for money?

What makes investors tick?

Investors and market traders try normally ...to make money.
Is it always the case?
The investment world is a complex dynamical system

One reason is that the players' motives are quite diverse
and not all of them fully visible.
Some benefits that are sought are not monetary.

Also behavioral biases interfere often.
Such fantasies can lead to anomalies in market prices and returns.

sous Is the money game always about money?
What visible and hidden instincts drive the chase?

The playground and the players

Finance, investing, what are those things about ?
What makes the "financial system" ?

A question to the guests in the financial tea room:

-
Do multiple and intense relations between:
(saving accounts, stocks, bonds, currencies, loans,
commodities, derivatives,
"structured" combinations
of several of them...),
  • Financial markets
(organized or over the counter, standardized or customized).
  • Financial institutions
(banks, brokers, investment funds, insurance companies,
central banks, government treasuries),
  • And of course private players,
make of all of them together a happy family?

This is far from certain!
But at least this motley crowd creates in common a typical, fascinating
to observe,
dynamic  dynamical system.
In other words
a system which equilibrium is always moving (thanks
in this case to volume / price / return fluctuations).

In that financial system,
investors (long term players usually) and
traders (short term players), who are either private persons or agents
of financial institutions, play a key part.
They network interact all the time between themselves.

 It is a restless place ! And a foggy one !
fog Uncertainty is king!

What makes the players
(investors and traders) tick

These investors and market traders try apparently ...to make money.
Good guess, but it is a simplification that does not explain all.

There are other drive drives.
Even fantasies. You will never imagine some of them ;-)

Yes, Jo Investor's and Jack Trader's motives can be quite
diverse
, and not all of them are fully visible:
if rational is defined as aiming at an optimum risk / benefit
balance

Benefits are mentioned here in the broad sense: they are
usually luckmonetary gains,
but not always or only.

People might have other - quite rational also - personal intentions
or
goal goals, for example

* understanding economic matters from the inside,
* supporting a precise activity,
* even, to some degree, impressing friends, colleagues or
   neighbors,
* or whatever.


Also there are differences between traders and investors, their
goals have different
plancalend plancalend  time horizons (short vs.
long term).
  • Others are sillymad irrational,
Here, behavioral biases, either inconscious or unconscious
tend to interfere.
Some biases can be positive (specific turns of minds are needed
to prefer initiatives to safety for example)
.

But often, unless the investor takes some elementary precautions

(or is lucky), these biases have negative effects, in the form of:
* For the player itself, outcomes (investment performances
   or 
other normally expected effects) that are suboptimal or
   harmful.


* For the whole system - when many players share similar
    biases - 
distortasymm  market anomalies that distort prices and
    returns.
   They can lead to counterproductive or harmful allocations of
    precious resources
=> See details in the main article about
Behavioral economics (aka behavioral finance)

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M.a.j. / updated : 09 July 2015
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