32: Simon Russell - Behavioural Finance and Artificial Intelligence

Simon Russell is a specialist in the area of behavioural finance and decision making processes in asset management. He is the author of the book: 'Cyborg – How to Optimally Integrate Human and Machine Investment Decision-Making'. In this podcast, he speaks with Daniel Grioli about psychology, how to deal with noise and gaps in our understanding of behavioural finance. Overview Simon Russell podcast: 1:00 min: How did you get started? 4:30 min: I decided to try to bring together what we are doing in finance and what we should be doing [according to academic research] 7:30 min: How did your background in psychology help you interpret what went on around you in investing? 9:00 min: Most managers don't outperform the market, but our ability as asset consultants to pick them was pretty poor as well. 14:00 What did people most wanted your help with in terms of behavioural finance? 16:30 Nudge 10 per cent of a large super fund with a million members, that is a lot of members that you can influence. 18:30 Behavioural finance is the study of how people make financial decisions. 21:00 An approach to behavioural finance can be split out in three elements: Normative, descriptive and prescriptive. Normative is what you should be doing, descriptive is what you are doing and prescriptive is when you are restricted in what you can do. 24:00 How do you help people move through these stages? 26:00 How to deal with noise 30:00 You are what you eat, so if you consume daily financial news you might become a short term investor 31:00 Group decision making 33:00 Anchoring is not mitigated by group interaction, if all of the group is exposed to this anchor. 35:00 Decision making and board environments 38:00 On using decision journals 44:00 Cyborg, the book 49:00 Humans are predisposed to see changes; quantitative methods do not 52:00 Negotiation research says that we just don't take enough of other people's perspectives into account 56:00 Banking Royal Commission and Psychology 1:00:46 How decision making works in large organisations 1:03:00 There are not just financial incentives that people are sensitive to. 1:05:00 Gaps in how people use behavioural finance 1:18:00 Discussion behavioural psychologist Gary Klein 1:20:00 James Montier 1:22:30 Three things investors can do to improve decision making