Prof. Meir Statman: Financial Decisions for Normal People | Rational Reminder 258

Behavioural finance provides a realistic and comprehensive framework for understanding financial markets and decision-making. Incorporating insights from psychology, it enhances our understanding of investor behaviour, market dynamics, and risk management, leading to more effective investment strategies and improved financial outcomes. In this episode, Professor Meir Statman, a renowned expert in finance and behavioural finance, takes us on a captivating journey through the intriguing world of maximizing well-being through finance. Professor Statman is a distinguished financial expert and a leading authority in the field of behavioural finance. His groundbreaking research has shaped the understanding of investor behaviour and its impact on financial decision-making. Through his academic contributions and practical insights, Professor Statman has become a trusted guide in navigating the complex intersection of finance and human behaviour. In our conversation, he unravels the secrets of maximizing well-being through finance and the intricacies of the field. We explore the captivating world of behavioural finance and its connection to efficient markets, the distinction between normal and rational investors, the allure of lottery-like assets, and the downsides of consuming dividends. We unpack the aversion to realizing losses and the debate between dollar-cost averaging and lump-sum investing. We delve into the rising popularity of alternative investment strategies, the influence of status on rational investor behaviour, the role of financial advisors, and much more. Tune in for this enlightening conversation that will not only reshape your understanding of finance but human behaviour too.
Timestamps:
0:00 Intro
5:16 Meir defines Behavioral Finance
8:05 How well-adopted behavioral finance is in financial economics today
10:26 How the second generation of behavioral finance differs from the first generation
15:37 The difference between a "normal" investor and a rational one
21:48 Why normal investors like lottery-like assets despite low or negative expected returns
26:24 The downsides to the "consume from dividends but don't dip into capital" rule
32:59 Why dollar-cost averaging is so persistent, when it is well-known to be rationally suboptimal
36:48 What makes strategies like covered calls and structured products so attractive to normal investors
43:19 Why normal wealthy people seek to invest in hedge funds and private equity, despite their questional benefits to a rational investor
48:24 How normal investors should deal with currency hedging in global portfolios
53:03 How behavioral portfolio theory differs from mean-variance portfolio theory
1:00:21 How an optimal behavioral portfolio differs from an optimal CAPM portfolio
1:09:21 How the typical risk-profile questionnaire can be adapted to improve the behavioral dimension of portfolios
1:15:53 How financial advisors can use behavioral finance principles to improve client outcomes
1:17:55 What puts financial advisors in a position to give well-being advice
1:23:27 Meir defines success in his life
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Book From Today’s Episode:
Behavioral Finance: The Second Generation - amzn.to/3qR7AmM
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Prof. Meir Statman - www.scu.edu/business/finance/...
Extra references can be found at: rationalreminder.ca/podcast/258

[@pware9643]

A Professor that doesn,t talk on some esoteric academia la la land.. just on a Normal human level ?!!! What a GEM !! Are you two taking notes.. ?

[@Omar-et7sb]

Agree. Made me think the book The Psychology of Money. Part of the reason I loved it, and I suspect why it has been so popular, is the author levels with you... His breakdown as to what's rational and what's REASONABLE for normal, emotional humans, is awesome.

[@me0101001000]

I wonder if you'd have Prof. Damodaran on here as well. Or if you have, I'll go check out that episode. But he's one of the people I follow most closely because of how thorough his breakdowns are, and his lectures are publicly available.

[@kr9825]

This was a fantastic episode. Love Prof Statman's straightforward and relatable approach.

[@ElektrikaCo]

This was great! Definitely in the top 10 episodes of all times. Thank you 👍 It would be great to see Richard Thaler as a guest on RR one day 🙂

[@cameronpassmore1561]

We are trying :)

[@AnhNguyen-bi6vg]

Thank you for an excellent interview. The success answer was so well articulated

[@danajepsen5760]

A couple things I thought about while watching this. First is that I have enjoyed watching the two of you not only in your journey as podcast creators, but as advisors. It has reminded me of my time at my work over the years watching people explore and evolve. Second is the thought Meir had on evoking honesty. It is a lesson that I am sorry to say I must keep re-learning, but I am thankful each time: the best invitation to truth is truth. Substitute any word for “truth”that makes it work for you. Thanks for the episode and the last few years.

[@sarchmaster5779]

Wonderful interview, thank you very much.

[@saurabhbagai5982]

Great episode!

[@bp56789]

Where's the financial decisions for weirdos video?

[@TheSteinbitt]

Everyone here is a weirdo, this interview is how we learn how normal people make financial decisions;)

[@johnyjsl9219]

thanks I enjoyed and learned

[@thomas6502]

Thank you!

[@PH-dm8ew]

Yet, at what amount of capital does someone consider themselves to no longer be poor?

[@araminge2860]

Promo-SM ☀️