Sunday, August 30, 2009

The Evolution of Risk

Just for the record, I'm going to write a book called "The Evolution of Risk" about how our brains are poorly wired to deal with today's financial products' risk/return information. I've been reading quite a bit about both the brain and the history of risk/finance and it's clear there one drives the other. My hypothesis is that our essentially caveman brains, which are designed for short term rewards, don't do a great job processing information regarding long term finances and their associated risks.

There is clearly some nature/nurture argument going one here, as I would imagine that if you're brought up in a "financially savvy" environment (whatever that is) you have a better understanding of the landscape. Needs a little research.

1 comment:

Jitendra Subramanyam said...

The idea that humans are in some ways irreducibly irrational has been hot since Kahneman and Tversky's first experiments (about 40 years ago?). Among the many current books on the topic, Dan Ariely's Predictably Irrational is well worth a read.