Category Archives: Behavioral Finance

Investing Game: Think You Can Time the Market?

Great simulation (on Quartz) for students to see the futility of trying to time the market, which is the belief that you can make good decisions about when to get out of the market (if you think it is overvalued) and to get back in (when you think it is undervalued).

This simulation uses prices from the S&P500 for a ten year period (this ten year period changes every time you play the game too!) which unfold on the line graph at the rate of about one year of data every 7-10 seconds.  Here is a screenshot after seven years elapsed (note the talking head on the left which provides tempting advice as the game unfolds).

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Here is a sample output after the game is completed (total time per game play is about one minute): Continue reading

Audio Resource: What Role Does Fear Play In Investing?

From Marketplace (5 minute interview):

Here are the questions covered in this interview with a psychology professor:

  • What happens in brain when fear hits (e.g., when stock market drops 1,000 points as it did last week)?
  • How do different people process the fear stimuli?
  • Is our fear response innate or can we teach people to develop a higher tolerance for pain?
  • How does fear impact our decision-making?

You might ask students where they fit on the “fight or flight response” continuum and how they might react to a 1,000 drop in the stock market.

NGPF Podcast: Tim Talks With Dottie Vollmer, Peer Financial Educator at Indiana University

Thank you to Dottie Vollmer, a Peer Financial Educator, for sharing her expertise with our educator community in this recent podcast (duration: 17 minutes).  Dottie counsels college students as a member of the MoneySmarts team at Indiana University.  In this podcast, she shares what she has learned in her work with college students on budgeting, student loans and credit cards and answers such questions as:

  • What are the biggest misconceptions about money that college students have?
  • What budget items do college students have the most difficulty cutting?
  • What do you know now that you wish you knew in high school?

Show notes: Continue reading

How Can Money Buy Happiness?

This NY Times article about a shift in consumer attitudes caught my eye after I had just posted a recent lecture from Harvard professor, Michael Norton.  In it, he shared his research which found that people found greater happiness from buying “experiences” rather than things.  The NY Times article highlights the challenging environment that retailers find themselves in now with the culprit being… Continue reading

New Products: Personal Loans NOT Based on Credit Scores

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The last few years have seen a number of start-ups lending money based on factors other than credit scores.  Here are a few highlighted in a recent Economist article:

  • Karrot: “Karrot worries less about borrowers’ credit history—the conventional approach—than about their cash flow. Customers must allow Karrot to monitor their current accounts and other financial data, such as credit-card bills. A big decline in income prompts an inquiry about an extended payment plan (to pre-empt a default); an increase prompts an offer of more credit. The initial evaluation takes only four minutes. Growth has been impressive: Karrot expects to lend $1 billion this year. Its default rate is 5%.”
  • Upstart: “Upstart, based in Palo Alto, is another firm learning to look beyond the credit record, in this case to borrowers’ educational history—an indicator of future earnings and thus the capacity to repay debt.’

Continue reading