Comments on: Stocks — Science Tells us When to Hold ’em & When to Fold ’em

By: Victor

Victor — Fri, 10 Jul 2009 02:42:58 +0000

Hello,

I think the description of the first experiment is rather inaccurate as it takes the perceived value as if it was the same thing as the market price, and they are not.

And it is somewhat misleading to ask someone how much he would pay for a mug of market value $6 when he is not searching for a mug. It does not reflect how market prices are formed, because only the valuations of potential costumers matters.

It is like taking random people in the street and asking how much they would pay for a Ferrari priced at $300k. I think the average would be way bellow that price.

By: Broughton

Broughton — Wed, 08 Jul 2009 13:41:05 +0000

I am a big fan of evolutionary biology, but I am skeptical as well. Statements like “Nature endowed us with the desire to value, and dearly hold on to, what is ours.” have to meet the same standard as any other scientific hypothesis. How do you test such a hypothesis? Surely skilled and rational traders would survive and attract fit mates.

Perhaps it would be easier to test theories of evolutionary biology using current populations than conjecturing about past populations of which there is scant archaeological record. What are the Darwinian implications of the welfare state that ensures the survival of all human offspring regardless of the fitness of the parents?

By: Claudio

Claudio — Tue, 03 Mar 2009 18:33:37 +0000

It seems to me that Peter, when he quite correctly states that not many people would be willing to bet their entire wealth on the outcome of the flip of a coin even if the coin is weighted in their favour 51 to 49, but they would bet repeatedly $1 at a time just proves what the article states about risk aversion. I can cope with losing $1, but losing all my wealth would be intolerable.
I believe Warren Buffet also pointed out to our tendency to keep bad stocks (just hoping. . .) while selling the good ones (to make te gains), behaviour which, from the point of view of a Martian would be irrational.

By: GH

GH — Wed, 26 Nov 2008 13:54:03 +0000

Methinks Peter is short AAPL.

By: David

David — Wed, 09 Jul 2008 10:27:41 +0000

… and who honestly believes that Ford’s stock is going to rally anytime soon and start beating Apple? Methinks the Peter doth protest too much…

By: Eamonn

Eamonn — Mon, 26 May 2008 00:53:50 +0000

Peter, you are presenting your theory on how people would behave and trying to use it to counter the way that studies have shown people do behave. Nobody is claiming that everyone is the same, all that is being said is that the tendency towards risk aversion is there.

By: Peter

Peter — Fri, 22 Feb 2008 05:59:19 +0000

I don’t buy the notion that a 50% chance $100 has the same value as a 100% chance of $50. Risk comes at a premium.

If you really believe it then you should be willing to bet your entire wealth on the outcome of the flip of a coin if the coin is weighted in your favour 51 to 49.

On the other hand, if you didn’t have to bet everything in one go but could bet $1 repeatedly with those odds you have a completely different story.

As for the Apple vs Ford example, this is also bogus – it doesn’t contain enough information. Perhaps someone might choose to sell Apple on the basis that its an over valued castle in the sky that cannot sustain that price and now is a good time to unload it on a sucker before it falls.