Why Investors Keep Repeating Their Mistakes

Behaviorist Tim Urban explains how the animal in us all has trouble learning from past mistakes.

Reviewed by: Dave Nadig
Edited by: Dave Nadig

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.”


If it was a video where it weren't real money and time were sped up, weeks went by every minute, maybe. But I'm not in that game, and I want to do this now because it feels better right now.

And that's what we do. When a mistake is the kind of mistake that results from instant gratification, that's the mistake we make over and over and over again. Because the animal's just not going to learn that lesson.

ETF.com: So we’re doomed?

Urban: Well, you have to change your habits in a very deep way. Overwrite your software. You have to overwrite it because you can't continue to override it. You can't continue to like try to overpower your software.

You have to actually change the software, because our habits are essentially kind of fixed. It can be done, though. That's one of the key life skills—getting good at managing your own habits. But again, that's not a natural thing for us; we have to learn that.

ETF.com: Is that where artificial intelligence and computers can help us? Are we just so flawed we have to lean on that eventually?

Urban: No, I mean that humans are incredible. I marvel at humans every day. And on the other hand, humans are really, really not incredible. We’re just deeply, hopelessly flawed and primitive. And if we were more advanced—and one day hopefully we will be—we'll look back on the humans today and say they were really still in the dark ages. They were very primitive. They were a hopeful kind of animal.

So I think there’s something really appealing about building artificial intelligence, and that doesn't have to take 2 million years of evolution. We can build that in our lifetimes.

If we build it correctly to make decisions and have morals and have a kind of sense of things—like patience and fairness, which we're not good at—but also just far, far more intelligent, where every problem that we think is hard or insurmountable is easy suddenly, that's tantalizing.

Things can go the other way, though. The reason AI's scary is because AI is not a thing of its own. It's just built to do whatever it's coded to do. We're still the god that creates it and its motivations.

But we're flawed. We're shortsighted. We have this instant gratification problem. And when it comes to the world of entrepreneurs, we know they’ll find glory and fame and endless wealth. There'll be statues of themselves if they can build this thing first.

So you get a lot of people racing and trying to build AI for all these ego-y reasons without necessarily thinking that long term about it. It's kind of the same problem as we have with finance, or someone who's procrastinating, or someone who's eating an unhealthy meal. Except in this case, we all die if they do it badly [laughs].

ETF.com: Oh great …

Urban: So it's a little concerning. But there are actually a lot of people these days, really smart people, working on what some people call “human intelligence,” which is working on actually enhancing our brains and actually trying to make humans better as we make AI. It’s almost a race where we have to get smart enough, quick enough to make AI well or to be smart enough to handle whatever AI we build, by the time it gets here.

So it's this really crazy, interesting time to be alive. And if I were watching this planet from another planet as a super intelligent species, I would have the popcorn out right about now. This is getting good.

Visit FactSet.com/insight to read more and to subscribe to ETF thought leadership from FactSet.


Prior to becoming chief investment officer and director of research at ETF Trends, Dave Nadig was managing director of etf.com. Previously, he was director of ETFs at FactSet Research Systems. Before that, as managing director at BGI, Nadig helped design some of the first ETFs. As co-founder of Cerulli Associates, he conducted some of the earliest research on fee-only financial advisors and the rise of indexing.