Need to know more about how behavioral finance concepts work in practice? Watch the below video . . . .
I was on an interesting twitter discussion about the best behavioral finance books out there. The usual suspects came up: Kahneman, Housel, Crosby amongst many others (I attached the feed).
But I thought the most interesting lesson in behavioral finance and the effects of psychology on investing occurred when Darren Rovell had to decide whether to cash his ticket (via PointsBet) on a long-shot bet that Northwestern would win the Big 10. His $1550 bet was set to pay off $238K at 200-1 if Northwestern beat Ohio State. If Northwestern lost, Darren received nothing. PointsBet was willing to facilitate a buyer for the ticket at various points during the game and that value would fluctuate depending on how the game was progressing. (Spoiler: it was close for a while which made things extra interesting . . . especially after halftime).
The parallels to regular stock investing, personal finance, GameStop, Venture Capital and all sorts of concepts are congealed in this three hour segment. The comments on the side of the Periscope simulcast are also fascinating as you can see what the “wisdom of crowds” looks like . . .
A special shoutout to Teddy Greenstein of PointsBet for explaining at varius points in the video for explaining who would buy Darren’s ticket and how the market for Darren’s ticket forms. It shows that for one person’s “behavioral finance” problem, can be someone else’s investment opportunity AND that not all investment profiles are the same.
What the three hours here shows:
-The structure of the bet
-Darren’s mindset throughout the whole process including the sunk costs of getting from his original bet to this point.
-And his decision that comes to a head around 2:05.
Forget the reading! Check this out!