How do men and women approach decision-making differently? An evidence-based answer to this question is important: If we want to make better personal, policy and business decisions, the tools and strategies we use will depend on our strengths and weaknesses, which may be correlated with gender. If we want to help others, we need to … Read more
Decision-making is hard because there is a fundamental and unavoidable ignorance about the future. We are especially uncomfortable about outcomes produced by processes that we don’t understand well. We’re much more comfortable with risks that we can quantify, model and forecast. This is called “ambiguity aversion“. We are so uncomfortable with the former (uncertainties) that … Read more
I took my annual look at my investments this week, and boy did I get it wrong. A few years ago, I determined I should have about 70% of my investments in equities. Instead, as of yesterday, I had less than 60%. Most of the excess was in cash, earning essentially nothing and missing out on … Read more
How is it that, eight years after the financial crisis, there are 549,000 homes currently in some stage of foreclosure? A recent study found that 20 percent of American households should have refinanced in 2010, but did not. Potential loss: $45,000 over the lifetime of the loan. Another study found that 25 percent had interest rates more … Read more
Why Did So Many People Make So Many Ex Post Bad Decisions? The Causes of the Foreclosure Crisis has a really interesting alternative explanation the global financial crisis of 2008: Maybe it wasn’t about financial industry insiders deceiving investors and homebuyers, financial innovations run amok, securitization that allowed mortgage originators to avoid having skin in the game … Read more
I’ve got a wickedly complex decision to make. What should my priorities be now that I no longer have a full-time banking job? I’ve got at least a dozen different alternatives, each with subtle-to-obvious differences with respect to my key values including impact on my family, benefit to society, intellectual challenge, financial security and leverage of … Read more
I have always been an ardent fan of solar power, ever since that balsa wood solar powered toy boat I built in elementary school. Free, unlimited and clean power would change the world if and when it can made practical. As I was preparing for a series of lectures on Cost-Benefit Analysis (CBA) for the … Read more
Many of the most important decisions we make involve trade-offs between the present and future. How much of my income should I save today for my retirement? What costs should governments incur today to reduce the risk of catastrophic climate change in the (hopefully) distant future? How should businesses allocate investments that pay off in … Read more
My family recently faced a bit of drama when my daughter was accepted to both a great state school and a wonderful, but much more expensive, private school . Naturally, my daughter strongly preferred the latter. As a finance guy with what I’d like to think is a disciplined approach to decision-making, how could I … Read more
Rationality is supposed to be integral to our humanity. Indeed, the “sapiens” in homo sapiens is from the new Latin sapere, meaning know, learn and know how. As a matter of fact, our subspecies is actually homo sapiens sapiens. Does this mean we have twice the intellectual capacity of our extinct ancestors from the Pleistocene? … Read more