Simon Russell is a specialist in the area of behavioural finance and decision making processes in asset management. He is the author of the book: ‘Cyborg – How to Optimally Integrate Human and Machine Investment Decision-Making’. In this podcast, he speaks with Daniel Grioli about psychology, how to deal with noise and gaps in our understanding of behavioural finance.
Overview Simon Russell podcast:
1:00 min: How did you get started?
4:30 min: I decided to try to bring together what we are doing in finance and what we should be doing [according to academic research]
7:30 min: How did your background in psychology help you interpret what went on around you in investing?
9:00 min: Most managers don’t outperform the market, but our ability as asset consultants to pick them was pretty poor as well.
14:00 What did people most wanted your help with in terms of behavioural finance?
16:30 Nudge 10 per cent of a large super fund with a million members, that is a lot of members that you can influence.
18:30 Behavioural finance is the study of how people make financial decisions.
21:00 An approach to behavioural finance can be split out in three elements: Normative, descriptive and prescriptive. Normative is what you should be doing, descriptive is what you are doing and prescriptive is when you are restricted in what you can do.
24:00 How do you help people move through these stages?
26:00 How to deal with noise
30:00 You are what you eat, so if you consume daily financial news you might become a short term investor
31:00 Group decision making
33:00 Anchoring is not mitigated by group interaction, if all of the group is exposed to this anchor.
35:00 Decision making and board environments
38:00 On using decision journals
44:00 Cyborg, the book
49:00 Humans are predisposed to see changes; quantitative methods do not
52:00 Negotiation research says that we just don’t take enough of other people’s perspectives into account
56:00 Banking Royal Commission and Psychology
1:00:46 How decision making works in large organisations
1:03:00 There are not just financial incentives that people are sensitive to.
1:05:00 Gaps in how people use behavioural finance
1:18:00 Discussion behavioural psychologist Gary Klein
1:20:00 James Montier
1:22:30 Three things investors can do to improve decision making
About the [i3] Podcast
The [i3] Podcast is a conversation with some of the leading institutional investors around the world, discussing their philosophy towards investing, in particular towards portfolio construction and investment strategy. The [i3] podcast is available on iTunes, Google Podcast, Spotify, Stitcher or your favourite podcast platform.