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Pricing’s influence on investment decisions (podcast)

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This episode of Tradestreaming Radio includes a conversation with William Poundstone, author of Priceless: The Myth of Fair Value (and How to Take Advantage of It).

We discuss:

  • market psychology of pricing
  • crowd following and momentum stocks
  • how investors are susceptible to pricing cues
  • what behavioral economics says about risk assessment

Poundstone’s book is a sweeping overview of some of the most influential ideas and people in behavioral economics the past 60 years.  While much ink is devoted to Tversky and Kahneman and their work, the second half of the book takes on a more practical approach in how we can all use the findings of behavioral finance to our benefit.

My interview with Poundstone focuses more on the quirks in the investment process rather than merely looking at consumer behavior.  Tradestreaming is more concerned with how Poundstone’s insights affect our investment behavior, our aversion to trade losses, and our perception of rapidly rising stocks.

We all chase momentum stocks and have a hard time buying real value.  Pricing theory and its place in behavioral economics literature is a small but growing field specifically in the investing vertical.

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