Understand how market participants think -- and you will understand which direction the markets will head. With that in mind let's take a look at another cognitive bias, hyperbolic discounting. As a reminder, cognitive biases are established tendencies of individuals to deviate from normal rationality under certain circumstances. For a broader description, please see the Daily Remarks posted on October 21, 2013.
Ever wonder why so many people these days are focused on short-term trading as opposed to long-term investing? Or why it's so hard to get younger individuals to effectively plan and save for retirement? Hyperbolic discounting can help us understand these phenomena.
The following quote is from John Maynard Keynes: "Human nature desires quick results, there is a peculiar zest in making money quickly, and remoter gains are discounted by the average man at a very high rate."
I'm not going to touch the subject of Keynesian economics -- at least not ... Log in or subscribe to continue reading.
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