The Two Big Strategic Mistakes That Investors Make
Research finds a discrepancy between what people plan to do when trading—and what they actually do.
The Two Big Strategic Mistakes That Investors MakeWe all know how much our past can shape our present. But it turns out the present can also shape the past.
While a graduate student, Chicago Booth’s Ed O’Brien, along with University of Michigan’s Phoebe C. Ellsworth and University of Southern California’s Norbert Schwarz, conducted a series of studies that asked people to recall how pleasant their lives used to be in the past, either while they were or were not experiencing some new stressor in the present. Of course, nothing about the past actually changes based on present events, and so these recollections should have remained identical. But this is not what O’Brien found. Rather, bad events in the present made similar events in the past suddenly seem rosier.
“We found some interesting contrast effects,” says O’Brien. “If something bad is happening in the present—if you just got dumped, for example—and we ask you, ‘How good was your romantic life last year?’ you will suddenly view it as much better than it actually was at the time.”
This rosiness has a cost. “People often use their memories to determine their behavior in the present,” says O’Brien, “but it’s surprisingly easy to push these memories around.”
For example, getting dumped today may suddenly lead you to perceive your past relationships as especially good by comparison—and so you may be mistakenly compelled to rekindle old flames that are better off staying unlit.
Ed O’Brien, Phoebe C. Ellsworth, and Norbert Schwarz, “Today’s Misery and Yesterday’s Happiness: Differential Effects of Current Life-Events on Perceptions of Past Wellbeing,” Journal of Experimental Social Psychology, July 2012.
Research finds a discrepancy between what people plan to do when trading—and what they actually do.
The Two Big Strategic Mistakes That Investors MakeResearch examines a hurdle to offering an apology in conflicts in which both parties are to blame.
Line of Inquiry: Shereen Chaudhry on Why We Hesitate to ApologizeAcquiring even mundane details about a stranger can shake our sense of anonymity.
The More We Know about Others, the More We Think They Know about UsYour Privacy
We want to demonstrate our commitment to your privacy. Please review Chicago Booth's privacy notice, which provides information explaining how and why we collect particular information when you visit our website.