Rule 6: Maintain an Intelligent State of Mind

Panos Mourdoukoutas
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Panos Mourdoukoutas: LIU Post

Chapter 6 in Intelligent Investing in Irrational Markets, 2013, pp 70-88 from Palgrave Macmillan

Abstract: Abstract Humans are both emotional and intelligent beings. As emotional beings, humans decide with System 1, an automatic mechanism that relies on intuition and emotions to make decisions. Often taking shortcuts by assuming that the future is a linear extrapolation of the past. As intelligent beings, humans decide with System 2, a deliberate mechanism that relies on reason, on detailed computation, and planning to make decisions rather than intuition and emotion. Maintaining an intelligent state of mind is all about shutting the emotional buttons that place System 1 in charge of the investing process, and committing costly cognitive errors: develop the right philosophical approach about investing, set up the right investment architecture, monitor investments closely and set up investment rules, and diversify across asset categories rather than just inside asset categories.

Keywords: Prospect Theory; Asset Class; Cognitive Error; Bubble Burst; Mental Accounting (search for similar items in EconPapers)
Date: 2013
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-34289-8_7

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DOI: 10.1057/9781137342898_7

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