Tracy Alloway and Joe Weisenthal recently had Victgor Haghani, co-founder of LTCM and CEO of Elm Partners Management, on the Odd Lots podcast.
Haghani told a story about an experiment he did in which subjects were given a loaded coin. They were told that the coin will land on heads 60% of the time. The subjects were given half an hour to flip the coins and there was real money on the line. But even with perfect information, knowing that betting on heads every single time was unequivocally the right decision, there were several subjects who bet on tails after seeing heads hit several times in a row.
Now you laugh, but the subjects were no dummies. These people were quantitatively trained, but that wasn’t enough for them to overcome decision making under uncertainty. The implications for investors is obvious. The whole thing is worth listening to.