Mean Markets and Lizard Brains: How to Profit from the New Science of Irrationality

by Terry Burnham

Book Overview

Everyone from journalists to market pros are turning to behavioral finance to explain, analyze, and predict market direction. In contrast to old-school assumptions of cool-headed rationality, the new behavioral school embraces hot-blooded human irrationality as a core feature of both individuals and financial markets. The 2002 Nobel Prize in Economics was awarded to scholars of this new scientific approach to irrationality. In Mean Markets and Lizard...

• Format: Paperback
• Language: English
• ISBN: 0470343761
• ISBN13: 9780470343760
• Release Date: September 2008
• Publisher: Wiley
• Length: 324 Pages
• Weight: 0.96 lbs.
• Dimensions: 0.9" x 6.3" x 8.9"

Customer Reviews

Fun and interesting read!

Conventional wisdom about investing suggests that people are basically rational, markets are basically efficient, and nobody can earn a reward without some risk. One corollary of this conventional wisdom is that individual investors ought to own stocks. Individual investors have been acting conventionally wise - but that may be exactly the wrong thing to do. Author Terry Burnham draws on the relatively new science of behavioral economics - informed by insights into human reasoning that have been discovered by cognitive researchers - and offers investment advice dramatically at odds with conventional wisdom. Burnham, a former Harvard professor with ample experience in finance, puts his thoughts in pop language, drawing not on market studies but on movies and other references to current culture, to make many of his most salient points. What he loses in `gravitas', he gains in entertainment value. We find that this investment book manages to be fun to read, while providing the grain of salt readers should take to temper more conventional economic advice.

Throwing some appreciation Terry Burnham's way.

I think why I like Terry Burnham's thought process so much is because, although he has every right, qualification and academic degree to do otherwise, he can set academic pretention aside and still manage to make an intellectual point that is not only valid, but relevant. While this may not be the most dense, heavily technical analysis of modern everyday economic problems, Burnham integrates social and economic principals in a way that makes them not only comprehensible to a reader of any background, but relatable to a reader of any background. As someone who gingerly sifts through endless pages of research (financial or otherwise), it seems as though most of what I've come across is pundit after pundit, each latter trying to one-up a former with their newest (and typically, tragicomically irrelevant) revelations - so a thank you to Terry Burnham for writing. He's added some 'good' to the 'common', and on a personal note, I just wanted to throw some appreciation his way. Looking forward to the next one!

Mean Genes and your money

The new science of irrationality shows us that "We are built to be exactly out of sync with financial opportunity," writes Dr. Terry Burnham, coauthor of the international bestseller "Mean Genes." Writing in the same personable style that made "Mean Genes" hard to put down, Dr. Burnham accomplishes the Herculean feat of making the study of economics seem like an enjoyable pastime. This Burnham accomplishes with the help of the new behavioral school of economics, a school that holds-contrary to the classical school of economics-that humans are not rational when making economic decisions. The human brain's prefrontal cortex is responsible for most of abstract cognition. The "lizard brain is verbal shorthand for the less cognitive, less abstract mental forces that influence human behavior," Dr. Burnham writes. Shaped in the Pleistocene era, the lizard brain thrived by seeking patterns, looking backwards, and repeating successful behaviors - three traits that can lead to failure in financial markets (and in other areas). Most financial analysts recommend looking backwards, i.e., looking at historical financial trends. That is like driving your car by looking in the rearview mirror. Even if you aren't an investor, read this delightful book. Markets affect everyone. And Dr. Burnham offers plenty of Mean Genes insights useful in everyday life. "When I check into a hotel, I never get the key to the mini bar," Dr. Burnham recounts in an anecdote readers of "Mean Genes" will appreciate. "Without the key, I don't need willpower to avoid any late-night temptation to devour junk food. I have found that most temptations are better avoided than resisted." I'm acting on Dr. Burnham's advice, and, just as I did with Mean Genes, I've found myself quoting from "Mean Markets and Lizard Brains."

Avoiding Emotional Investing

Do you ever invest with your heart instead of your head? Have you ever lost money on an investment decision due to less than rational thinking? Here are a few traps I've seen and felt myself. - "I don't want to admit I made a mistake buying this equity, so I'll hang on until it goes back up." - "Everybody else is making money in that market. It must be a great place to invest." - "That stock has gone down a lot. It must be a bargain now." If you can relate to any of these, this is a great book for learning how to check your emotions at the door and think objectively about your investment decisions. Terry Burnham dissects many different emotional responses and explains how to systematically avoid them. Its a great way to get a lot smarter about your approach to investing.

If You can Afford Just One Book, Buy This One

From "Essays on Genetic Evolution and Economics" to the widely acclaimed "Mean Genes", Terry Burnham has been a leader in applying learnings from sociobiology broadly. His gift is making complicated academic research accessible to all. His novel message is that our underlying human behavior, honed through thousands of years of genetic evolution, actually gets in the way of our logical thought processes when it comes to playing the stock market, buying a house, or trying to save up for our kids' college education. Nowhere are his great insights more valuable than in analyzing the problems we face when making these personal investment decisions, as he does in "Mean Markets and Lizard Brains : How to Profit from the Science of Irrationality". Professor Burnham weaves insightful personal anecdotes from his vast array of experiences (i.e., as an academic, entrepreneur, investment banker, day-trader, biologist, and United States Marine), and combines them with sound analytical economic thinking (i.e., as a PhD economist from Harvard with up-to-date knowledge of the latest thinking on irrationality). The result is a detailed description of the basis for our poor instincts in financial decision-making, as well as a prescription for improving our performance in this context. Everyone wants to make money by investing wisely, and yet few of us are able to rise above our "Lizard Brain" tendencies. This book goes beyond describing our shortcomings; it teaches us how to think for ourselves in over-riding those "Lizard Brain" inclinations. I once described "Mean Genes" as the best book I ever read. "Mean Markets and Lizard Brains" challenges that bold assertion. By simplifying a complex topic (i.e., managing your money) with new insights drawn from disparate learnings, Terry Burnham has written a most unusual kind of "how-to" book -- one that does not promise vast riches with little or no effort, but rather vast insight coupled with always practical and realistic advice. If your are looking to learn as you rebalance your portfolio, read this book.