Book Reviews
Review of Left Brain, Right Stuff
Why business leaders can’t learn from behavioural research
 
Cognitive biases leading to human misjudgement and errors have emerged as a major area of study over the past decades. Behavioural research experiments, under which humans have been put through systematic analysis and investigation under controlled and naturalistic observation, have shattered the illusion that our decision-making is rational. Biases, such as following the herd, overconfidence, fear, greed, etc, lead us to making gross errors in judgement all the time, no matter how sophisticated our knowledge base. The entire global financial crisis was a live example of such a misjudgement on a global scale. Our realisation, that irrationality of decision-making in certain circumstances is the norm, has spawned many interesting books, fetched Daniel Kahneman a Nobel Prize and led to even policy prescriptions to take advantage of our behavioural flaws buy nudging us to do the right things. (Britain has an official ‘Nudge Unit’ to steer citizens toward better choices).
 
In his 2007 book, The Halo Effect, Phil Rosenzweig addressed how our biases find their way into studies of business performance, leading us to glorify successful companies. His 2014 book, Left Brain, Right Stuff: How Leaders Make Winning Decisions, details the enormous influence of decision research in domains from finance to public policy but notes that business leaders haven’t taken advantage of it. The book explores the many reasons for this. For instance, while it is easy to condemn a decision that fails, it is hard for experts in decision-making to suggest what the business leaders should do in real-life situations, to avoid disastrous decisions.
 
Indeed, it is not possible to apply most of the experiments from which we learn about our cognitive biases, in high-stakes business situations such as a takeover or bidding for a big new project. These experiments (would you have $90 for sure or a 90% chance of getting 100% and 10% chance of nothing) are not only simplistic  but also, we cannot alter the terms of the deal. If you could, the decision-making would become infinitely more complex—exactly what happens in the business world. 
 
Also, what behavioural science suggests we do to improve ourselves is difficult for business leaders to apply. One idea is ‘deliberate practice’—improve yourself through action, feedback and adjustment. This can work for simple tasks of life, such as memory games or musical instruments, but it is tough to apply in business situations, since feedback from a crucial action can come years later. Rosenzweig has many real-life cases and advice on what to do in certain situations. They are all eye-opening and challenging. A very useful read.

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Review of John Bogle On Investing : Industry Legend Speaks

Insights into guiding principles of a true pioneer in index funds

 
John Bogle is an institution in the US financial market. He is a true pioneer, having created index funds (under the Vanguard label) and having led a lifelong battle for the small investor by advocating low-cost funds. He has also been a powerful writer; his books are now being re-issued as investment classics. John Bogle on Investing: The First 50 Years offers insights into his guiding principles. It consists of the most important essays organised into five sections.
 
The first deals with investment strategies for the intelligent investor, emphasising simplicity in investing. It argues that experts like fund managers, investment newsletters, etc, have not been able to beat the benchmark index returns. He, thus, builds the case for investing in index funds. The section explains that risk keeps on moderating as the time horizon for investing increases, while time magnifies the impact of costs. 
 
The second part deals with the past trends and future prospects of the mutual fund industry, emphasising the importance of keeping fund costs down. It moves on to corporate governance issues and explains the role of mutual funds on corporate governance of companies they invest in. The book also deals with the evolution of Vanguard mutual fund and the challenges faced by Bogle in creating it. It ends with the ‘economic role of investment company’, a lofty idea that will put many in mutual fund industry to shame.

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Should You Invest in a Recurring Deposit?
Make use of the flexibility of the product to earn higher returns
 
Bank interest...
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