February 14, 2008

You're watching the articles of Euribor for the day on February 14, 2008.

Everything is psychology

Daniel Kahneman is a psychologist who won the Nobel Prize for economics in 2002 by the introduction of knowledge from psychological research into economic science. He studied primarily the taking of decisions in cases of insecurity and concluded that investors in the stock market, for example, sell for reasons not rational, but emotional: dispose of their shares when markets go down, fearing to lose even more if do not sell. The curious thing of all is that the primary motivation for investors is the fear (an emotion) and not making money (something rational). Thus, an investor would prefer not to lose rather than win 100 euros, which implies an asymmetry in decision-making.

To prove it, I'm going to make some assumptions.
First choose between:

A profit of $ 300,000 safely.
A 80% chance of winning $ 400,000. and 20% did not win anything.

And now choose between:

A loss of $ 300,000 safely.
A 80% probability of losing $ 400,000. and 20% did not lose anything.

In the first situation the majority of subjects opt for the alternative A, despite the fact that the alternative B has higher expected probability.

Paradoxically more than 90% chose alternative B in the second position. This pattern is constant, people try to avoid risks when looking for a win, but if you choose the risk is to avoid a loss.

It is interesting to know this behavior to negotiate and realize the feelings of the other party. The fear of losing is quite strong. Imagine for a moment that you € 6,000 playing roulette in a "Red and Black." If ganáis, surely you subidón the last few days, but if you lose the remorse will endure for many weeks (not to mention the anger of your partner).

Having learned this, we can try to understand why many times the upgrades are so slow and falls so fast.

Closely related to this subject, I read that in Cotizalia The financial turmoil fall in risk aversion levels seven years ago.

All these fears have led to changes in investment strategies. Thus, there has been an increase in the cash within existing portfolios. The cash has reached on average 4.7% of capital compared to 3.9% from January. Furthermore, according to this survey, 41% of those surveyed were sobreponderados in cash, the highest percentage since the terrorist attacks of Sept. 11.

If you already read my mother, that money is very miedica.

At the moment we have today does not seem scared, as if the economy had some kind of disorder piscológico a day rose from depression and other euphoric. For example, we see that the Japanese ended with a rise in the Nikkei's 4.3%, which means the highest since 6 years ago. As for Spain's GDP grew by 3.5% in the fourth quarter of 2007, more or less than expected.

If those who are going to endorse what are the Swiss, yesterday in the midst of the storm gave them to raise rates. Today one of its largest banks, UBS has confessed to a loss of 11,300 million dollars in the fourth quarter of the year as a result of the crisis in subprime mortgages, has also announced that it will replenish some 13,700 million dollars and has reiterated that 2008 will be another difficult year for the entity. We see that here is not saving anyone.

Yesterday comentábamos Warren Buffet's strategy of buying cheap and then sell expensive (innovative, we) may now be a good time to exit the credit card because the dividend yield of the stock market is the most attractive in 15 years. Although clear, we must have good jobs and with a heart-proof tachycardia.

So in conclusion, you get a dilemma for those of Kahneman, to see what haríais:

You have chosen to go to the last concert that will give the Rolling Stones with all its components in life and now you have the input that he has cost € 1000. When you're at the Vicente Calderon, you realize that you've lost the entry and it is impossible to queue. Would you spend on other 1000 € in buying a new?
You have chosen to go to the last concert that will give the Rolling Stones with all its components in life and you have booked a ticket which costs € 1000. When you're at the Vicente Calderon, you realize that you have lost € 1000, but they accept credit card and there is so much demand for tickets that there is no penalty to cancel the booking. ¿Buy the ticket?