Irrational Finance

The following are a series of "cognitive traps" which influence decision making skewing it from the purely rational:
1) Availability bias - this is a tendency to base decisions more readily available to memory rather than viewing all the data needed. Eg: The last three birds I saw were going east therefore the next bird will likely be going east however in the past I've recorded that most birds fly west at this location.
2) Hindsight bias:  This is a tendency to selectively attach higher probability to events after they have happened as compared to what we in fact did prior to them happening. eg. The clouds were building before the storm and the duck quacked therefore I could have known the storm was coming because of the building clouds and the sound of the duck quacking.
3) Problem of induction:  This is the tendency to formulate general rules on the basis of insufficient information.  Eg:  A feminist is raped by one man therefore all men are rapists.
4) Fallacy of Conjunction: We tend to overestimate the probability of seven events of 90 % probability while underestimating the probability that at last one of seven events of 10 % probability will occur.  Eg. A feminist shouted before all the ducks were raped..
5) Confirmationa bias:  Tendency to look for confirming evidence of the initial hypothesis rather than falsifying evidence that would disprove it.  Eg: A newspaper report in Africa says that a man attacked a feminist therefore all feminists are raped by men especially if they hear a duck quacking because John said he clearly recollected a duck quacking before Mary read the newspaper.
6) Contamination effects: whereby where we allow irrelevant but proximate information to influence a decision.  Eg. The Rape of the Sabines was shown on tv before the legislation to ban all men from the planet because a feminist was raped by a duck.
7) The affect heuristic: whereby preconceived value-judgements interfere with our assessments of costs and benefits.  Eg. All universities need to be outfitted with lighting normally seen on space shuttle runways at a cost of billions of dollars to protect one feminist from being attacked by a duck even though rape the university is the least likely place for women to be attacked.  If anyone seriously wanted to address women being attacked they would put the lighting in the nightclub districts where university women go and attack is common.  Alternatively a law that said men who attacked women would be wed for life to a duck would cost the price of a duck and change dramatically the false legal 'seek work' statistics that rarely separate 'repeat offences' and 'repeat offenders' so that an actual prediction of crime can be assessed.  Repeat offenses and repeat offenders account for almost all  crime in society.  Ironically other than ducks the majority of society are surprisingly law abiding and cooperative.
8) Scope neglect:  which prevents us from proportionately adjusting what we should be willing to sacrifice to avoid harms of different orders of magnitude.  Eg. If I drop my laptop and camera and wallet while I am running there is little chance that the attacker will continue to chase me to pick pocket me or pistol whip me.
9)Overconfidence in calibration: which leads us to underestimate the confidence interval within which our estimates will be robust.  Eg. I was a finely tuned love machine in my 20's and 30's but now nearing 60 I might not be.
10) Bystander apathy: which inclines us to abdicate individual responsibility when in a crowd. Eg.  This explains why governments and committees are were responsible for the Holocaust and the propaganda of history focussed on Corporal Hitler in a silly attempt to make people believe their government and there committess were less likely to cause a world war.  The audience is as complicit.  There is such a thing as 'collective guilt' despite how many virgins and mustached men are sacrificed before the cock crows.

These examples of irrational effects on rational thinking come from Niall Ferguson, The Ascent of Money.  He is not responsible for the irrational examples.  The book, Science of Fear described some of these influences and different ones.  Kurt Vonnegut probably did a better job of 'showing' them in his incomparable novels.  Freud and Jung and so many others have demonstrated at length how 'unconscious forces' influence conscious process.
The end result for me is that I sometimes have great difficulty taking people seriously who take themselves so seriously.  Words like, pompous, stupid and silly tend to flash through my mind especially as thosepeople (E.E. Cummings conjunction)  insist with greater and greater vehemence that they are inhumanly right in areas of conjecture.  The lady protestest too much.
That said some people carry big guns and are not afraid of killing other people on a whim.  These people should be humored because they are highly dangerous like heartless lizards.  However as a person who collects lizards describes them as 'her children". This approach seems to work well as long as the lizards aren't too hungr.  

It behooves us to understand our own fallibility and be forgiving of those who insist they are right especially when they have might or worse 'group might' on their side or simply when they are wrong.

Niall Ferguson's, The Ascent of Money, A Financial History of the World is a great read especially for those who don't appreciate bankers, don't understand economics and get their information about finance from such sources as CNN. I gained a thorough appreciation for good bankers and investors from this book but then I'd already read "Ship of Gold" and I rarely watch CNN. I also did economics 101 at university and took an inordinate interest in Keyes because he was a friend of Virginias.  Then the Rothschild's were especially interesting before WWII while Rockerfeller was a particularly good sort in the 30's.  Personally I've not met 'idle rich' though I've certainly wanted to be one. The very very rich I've met have been hard working and highly responsible.  Not surprising since very few people want to make money compared to the very many who want to 'take' money. Bill Gates and Andy Warholl are far more interesting than Stalin ever was.