Behavioral finance FAQ / Glossary (Obedience)

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Dates of related message(s) in the
Behavioral-Finance group (*):

Year/month, d: developed/ discussed,
i: incidental

Obedience to "experts"

00/8i,12i - 01/10i
+ see guru, overreliance

Beware of those men in white coats.

Intimidation or just the comfort of mimicry?

People tend to be intimidated by others who are seen as experts.

In that case, they might follow their recommendations more or less
blindly
.

That kind of obedience / dependence / submission (or naive trust)
can reach excessive levels with tragic consequences.

Those excesses has been shown for example by the "Milgram experiment",
although in that case obedience to expertise was combined with obedience
to authority.

Deciders should keep being deciders.

They should not make counselors decide for them

Why are gurus followed ?

Various individual biases are at work (lazy thinking, availability heuristic), but
above all, the feeling of safety brought by the mother of most collective
biases:
mimicry (see that word).

Of course it does not mean that in matters where your knowledge is
limited, and
to avoid falling into narcissism and illusions of knowledge /
experience (see those phrases),
you should not look for outside
information and opinions
.
But you stay the final decider.

Those informers / advisers,
however comfortable their information /
advices or even orders make you feel
should not be seen as the ultimate
response to the
world uncertainty (see that word) , as you have to accept
that you are the one who do the bet.

Financial (and economic) examples

Money experts or quacks?

The economic shamans

Some economists, market commentators

or financial analysts reach a guru status .


Those pundits are seen as economic or market diagnostic / prediction
experts..

They always have a definitive answer that ignores the general
uncertainty
mentioned above (*).

This affirmative / overconfident posture impresses their "followers /
believers" and contribute to their lack of questioning their apparent
wisdom.

(*) even if themselves are not enemies of contradictions, and of
      reverting
their stances to new ...affirmative ones.
      You will never see them expressing doubts)

The market incidences

Perfect / efficient markets suppose the independence of deciders
(see "independence").

The guru phenomenon (like the herding phenomena) goes against
independent
thinking and behavior and might explain some market flaws
(distortions from the large numbers / random "law" for example when many
people follow similar gurus).

In extreme cases, some "experts" use their clout and
domination to manipulate investors
(see manipulation
/ deception)

Incidences for market players
who follow too blindly their advices


Also, many experts can themselves be influenced by the "peer
pressure"
of colleagues In finance they are the other analysts or fund
managers.

That might explain for example why they tend to under react to new
situations (see reaction), none of them wanting to be the first to jump
into the new swimming pool

As a result they might under-perform the market.

Some studies have shown that picking stocks at random might

get better results than those of the average professional.
Please, don't tell it ;-)

(*) To find those messages: reach that BF group and, once there,
      1) click "messages", 2) enter your query in "search archives".

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This page last update: 11/08/15           

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