Behavior Change (Ultra Egghead Edition): TMSIDK Episode 24

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When it comes to investing, people fail to notice the obvious shadow behind potential big gains. (Photo: Wikimedia Commons)

Ready for a thought experiment? You have to pick between four investment funds: Option A outperformed the market by about 30 percent over the last 9 years. Option B outperformed the market by 45 percent with moderately erratic performance. Option C has outperformed the market by 65 percent with absolutely no volatility in performance. Option D outperformed the market by 70 percent with a lot of erratic differences across years. Which fund do you choose?

It’s a well-known fact of investing that it is impossible to dramatically outperform the market over 9 years with absolutely no volatility. And yet, most people are perfectly comfortable investing in exactly that (Option C, which effectively describes Bernie Madoff‘s ponzi scheme). Most people also admit that Option C is impossible. So what’s happening? Harvard Business School professor Max Bazerman describes it in this episode of Tell Me Something I Don’t Know as a “failure to notice.” So how do we make ourselves notice what’s wrong?

Angela Duckworth (psychologist and author of Grit) is our special guest co-host, with Mike Maughan (head of global insights at Qualtrics) as real-time fact-checker. TMSIDK is in Philadelphia with a cornucopia of the world’s most renowned behavior change experts presenting original research.