Why Investors Keep Repeating Their Mistakes

December 02, 2016

Hear from Tim Urban and more than 120 speakers at Inside ETFs 2017, which runs Jan. 22-25 in Hollywood, FL. See the agenda and register here now for the world’s largest ETF conference.

Tim Urban is the man behind the popular website “Wait But Why,” and has tackled such subjects as why Elon Musk is so good at everything, why humans procrastinate and the coming age of scary/brilliant artificial intelligence. His TED talk “Inside The Mind Of A Master Procrastinator,” has been one of the most popular TED talks this year. Tim will be speaking at the Inside ETFs conference in Florida in January, so ETF.com CEO Dave Nadig sat down with him to preview some of Tim’s thoughts on investor behavior.

ETF.com: As a reader, I often think that you're sort of a human behaviorist, which seems really relevant to investing. What got you interested in studying why people do what they do?

Tim Urban: There’s really no formal education in any of this. If you were at dinner with some friends, and you have a fun conversation about human nature, it's kind of like that, except in this case, I’ll have thought about a certain topic for sometimes a full week, just thinking—collecting thoughts I've always had about it, organizing them, structuring them and looking for the pattern in everything. I think if most people did that, they'd be surprised with what they come up with.

ETF.com: A lot of what you do write acts as a bit of a mirror on why we do stupid or unproductive things as human beings. Have you found that that's really changed your own behavior much?

Urban: I’m not great at it. I'm a little OK at it. The epiphany is that all of us are basically kind of the same, like we're all kind of a bunch of children trying to figure out how to be adults. Basically everyone. All of us are dealing with a battle in the brain between our primitive animal past—the fact that we are an animal, just any other ordinary animal.

And then we're also this miracle of rational thought that's inside of the animal. And there’s this weird fight that the two of them are having all the time, the animal with this thing inside of it.

ETF.com: So what happens when we have that battle?

Urban: Sometimes it comes out in us caring way too much what other people think about us, because the animal cares about that because it's tribal. Or sometimes it comes out in procrastination, which for me is definitely one of the ways it manifests itself. Sometimes it comes out in our eating too much. Or we don't exercise enough. Or we have an anger problem. Or we just make bad decisions.

ETF.com: Bad decision-making is a real plague for investors in particular. Are humans just inherently bad about learning from the past?

Urban: Oh, of course. The animal in our brains does not understand the concept of, in a broad sense, learning from the past, because it really doesn't even know the past exists. Other than, “Oh, because of that time I almost died, I'm scared of this thing now.”

But in a more specific sense, it doesn't understand the concept of patience and of doing something that's less pleasant now because it's likely to help in the future. We're not good at that. We like instant gratification. Patience is very, very unnatural to us.

Finance is often all about very adult, calm, collected patience, and saying, “Well, this looks tempting, but history tells me it's not right.” And even though it might be fun to make this investment, or it might seem like my fear might be telling me to sell, my rational brain tells me that if I were advising someone else, I probably would say, “No, hold on to that.”


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