Mean Markets And Lizard Brains: How To Profit From The New Science Of Irrationality

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Everyone from journalists to market pros are turning to behavioral finance to explain, analyze, and predict market direction. In contrast to old-school assumptions of cool-headed rationality, the new behavioral school embraces hot-blooded human irrationality as a core feature of both individuals and financial markets. The 2002 Nobel Prize in Economics was awarded to scholars of this new scientific approach to irrationality. In Mean Markets and Lizard Brains , Terry Burnham, an economist who has a proven ability to translate complex topics into everyday language, reveals the biological causes of irrationality. The human brain contains ancient structures that exert powerful and often unconscious influences on behavior. This ''lizard brain'' may have helped our ancestors eat and reproduce, but it wreaks havoc with our finances. Going far beyond cataloguing our financial foibles, Dr. Burnham applies this novel approach to all of today's most important financial topics: the stock market, the economy, real estate, bonds, mortgages, inflation, and savings. This broad and scholarly investigation provides an in-depth look at why manias, panics, and crashes happen, and why people are built to want to buy at irrationally high prices and sell at irrationally low prices. Most importantly, by incorporating the new science of irrationality, readers can position themselves to profit from financial markets that often seem downright mean. Mean Markets and Lizard Brains skillfully identifies the craziness that is part of human nature, helps us see it in ourselves, and then shows us how to profit from a world that doesn't always make sense.

E-Book Content

TeAM YYePG Digitally signed by TeAM YYePG DN: cn=TeAM YYePG, c=US, o=TeAM YYePG, ou=TeAM YYePG, [email protected] Reason: I attest to the accuracy and integrity of this document Date: 2005.06.25 14:24:03 +08'00' Praise for Mean Markets “Conventional finance axioms—no-frills rationality and maximizing happy campers—are found wanting. In his wonderful Mean Markets and Lizard Brains, Terry Burnham shows you why. Comingling biology and finance has never been so entertaining.” —Jamil Baz, Head of Global Rates Research, Deutsche Bank “A fascinating application of evolutionary theory that revolutionizes our understanding of how financial markets behave. I have already altered my own portfolio allocation after reading this book. If you read it, I am sure you will too.” —Nitin Nohria, Richard P. Chapman Professor, Harvard Business School and coauthor of Driven: How Human Nature Shapes Our Choices “Mean Markets and Lizard Brains should be required reading for every Wall Street professional whether in sales, trading, research, or corporate finance. It reveals that individuals often act irrationally for a very rational reason; they have inherited a thought process that goes way back to the days of hunter-gatherers so that brains are built to be out of sync with rational financial decision making. Understanding this profound message should allow investors to improve performance and make fewer mistakes. This is a fascinating book that is certain to become a must read for every investor in the financial markets.” —Sadek Wahba, Managing Director, Morgan Stanley Mean Markets and Lizard Brains HOW TO PROFIT FROM THE NEW SCIENCE OF IRRATIONALITY Terry Burnham John Wiley & Sons, Inc. Copyright © 2005 by Terry Burnham. All rights reserved. Published by John Wiley & Sons, Inc., Hoboken, New Jersey Published simultaneously in Canada No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted unde
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