Lessons from behavioural economics – The Property Chronicle
Select your region of interest:

Real estate, alternative real assets and other diversions

Lessons from behavioural economics Overcoming trustees’ bias towards the short-term

The Economist

Pocket watch on pile of dollars

ARTICLE ORIGINALLY PUBLISHED 17TH NOVEMBER 2017

Richard Thaler was awarded the Nobel Prize for Economics in October 2017 for his work in behavioural economics. His citation refers to his contribution to building a bridge between economic and psychological analysis in individual decision making.

Professor Thaler has been writing about poor decision making by individual investors for over 20 years and his work deserves to be at the forefront of, for example, charity investment committees to help them avoid the trap of what he terms “myopic loss aversion” arising from too short-term a focus and too frequent re-allocation between asset classes.

There is a considerable body of evidence that the individual investment horizon is too short giving rise to “reckless conservatism” revealed by under-allocation to risk assets resulting from loss aversion and underestimation of the investment horizon. Experimental data reveals that individuals at the point of retirement consistently under-estimate their surviving life expectancy by as much as five years. At the same time, they over-estimate the risk of loss from real asset classes forgetting that anyone investing in the MSCI world equity index for at least a twelve-year period since 1970 would have secured a nominal gain; indeed, for the majority of holding periods an annual return of between 5% and 15% would have been achieved.






The Economist

About Philip Broadley

Philip Broadley

Philip Broadley was formerly CFO of two insurance companies. He furthered his own interest in behavioural science as it can be applied to investing by studying for a Masters degree at the London School of Economics during 2015. He is a director of several companies and a charity trustee. He writes in a personal capacity.

Articles by Philip Broadley

Subscribe to our magazine now!

SUBSCRIBE