Book Description

Smarter decision-making based on cognitive science

AlphaBrain is the investor's guide to achieving more, doing better, and reaching higher. At its core, the magnitude of your success is based on the quality of your decisions. The problem is that human beings are poor decision-makers; we tend to approach problems after they arise instead of planning for them in advance. We put too much weight on instinct, belief, and "gut feeling." We make the same mistakes over and over again—so reliably, in fact, that cognitive science can accurately predict exactly which mistakes we'll make and when. This book offers a way to understand and plan for the human mind's usual tendencies to help you make smarter investment decisions. Using a framework based on cognitive research, you'll learn how to approach decisions objectively, systematically, and constantly review your process; you'll take action based on evidence instead of intuition, and get ahead of potential problems before they get the best of you.

With so much riding on the correctness of your choices, natural tendency can be a dangerous thing. This book shows you how to remove the bias and emotion to start making choices backed by hard evidence and objective data and lower your stress.

  • Shift your processes from reactive to proactive
  • Base decisions on reality over belief
  • Eliminate cognitive bias and reduce common mistakes
  • Make better decisions with a systematic, objective approach

Why do we begin managing risk only once it becomes apparent? Why do we react to the market instead of making the big decisions before emotion takes over? Investing has always been a largely reactive field, but those who dominate it approach decision-making less like a human and more like a machine. AlphaBrain shows you how to get real about investing, with cognitive techniques that lead to smarter, evidence-based decisions.

Table of Contents

  1. Cover
  2. Preface
    1. How a Mistake Made Me a Better Investor
  3. About the Author
  4. Part I: Decision Analysis
    1. Chapter 1: Marginal Improvement, Significant Impact
      1. Decision‐Making as a Skill
      2. Spectators in Our Own Decisions
      3. Marginal Improvement and Its Outcomes
      4. Marginally Speaking
      5. The Power of Avoiding Mistakes
    2. Chapter 2: Blinded by Bias
      1. Mistakes and Markets
      2. Blind to Our Blindness
      3. Minimizing Effort
    3. Chapter 3: Rational Decisions
      1. The Science of Decision‐Making
      2. Swing Analysis for Portfolio Managers
      3. Asking the Right Questions
      4. Mistakes in Common
      5. Descriptive versus Prescriptive Decision Theory
    4. Chapter 4: Decision Analysis
      1. We Are All Students of the Same Game
      2. Decision Analysis
      3. The Biggest Mistake in Decision‐Making
    5. Chapter 5: How to Solve Any Problem
      1. Close Enough
      2. We See What We Are Shown
      3. Stay Home, See the World
      4. ABQs of Research (Always Be Questioning)
      5. Working Smarter, Not Harder
      6. How Information Can Lead Us Astray
      7. Postscript
    6. Chapter 6: Cerebral Junk Food
      1. 10 Reasons Listicles Are Bad for Your Health
      2. You've Been Framed
      3. A Picture Is Worth a Thousand Biased Words
      4. How We Manufacture Uncertainty and Volatility
      5. What Dieting Taught Me About Consuming Information
    7. Chapter 7: The Input Paradox
      1. Bowflex Behavior Modifier 2000
      2. Dieter's Paradox
      3. Negative Calorie Foods
      4. Diversifier's Paradox
      5. Illusory Invulnerability
    8. Chapter 8: Auditing Mental Accounting
      1. Example 1: Wasteful Education
      2. Example 2: Drunken Economics
      3. Example 3: Bet the House
      4. Example 4: Half Off
      5. How to Stop Turning Winners into Losers
  5. Part II: Decisions in the Financial Context
    1. Chapter 9: Mistakes at the Heart of Investment Management
      1. A Common Risk Management Mistake
      2. Why Risk Takers Stopped Taking Risk
    2. Chapter 10: Manager Selection
      1. Designing a Manager Selection Algorithm
      2. Flipping the Frame
      3. Stroke of Genius
      4. The Definition of Actionable Intelligence
      5. What Allocators Can Learn From Paper Traders
    3. Chapter 11: Prophecy of Value
      1. From Scalping to Trading
      2. How Regret Makes Us Do Things We'll Regret
      3. What Would You Do?
      4. P&L Driven P&L
    4. Chapter 12: Mind over Matter
      1. Painfully Aware
      2. Fooled by Stability
      3. The 20/80 Rule
      4. Why Size Matters
      5. Lessons from Nick Saban and the Octagon
      6. Doubling Down on Luck
      7. Capitalizing on Change
    5. Chapter 13: Coaching
      1. Why Coaching Is a Waste of Time and Money
      2. Why Even the Best Seek Coaching
      3. The Power of Confronting Fear
    6. Chapter 14: Trading Decisions
      1. What Makes Trading So Difficult
      2. The Freedom of a Straightjacket
      3. The Natural Beauty of (Decision) Trees
    7. Chapter 15: How to Stop Losing Money
      1. How to Stop Losing Money on the Right View
      2. I Knew It!
      3. Stop‐Loss Trade Entry
      4. Easy Money
      5. Positive Expectancy
      6. Three Key Reasons Investors Should Use Options but Rarely Do
    8. Chapter 16: The Danger of Shortcuts
      1. Blinded by Myopia
      2. Odometer Readings and Negative Interest Rates
      3. Anchored to Missed Opportunities
    9. Chapter 17: The Power of the Unexpected
      1. Unconscious Influence
      2. Ready, Fire, Aim
      3. The Real Reason Commodities Collapsed
      4. Slower Is Faster
  6. Index
  7. End User License Agreement