Terms Beginning With 'c'

Cognitive Computing

What is cognitive computing?

Cognitive computing can be defined as the field of computer science that mimics the function of the human brain through natural processing language, data mining and pattern recognition. Cognitive computing forms a part of intelligence and is related to explaining complicated problems that may have dynamically changing circumstances and information-rich data that tend to change and, at times, conflict with each other. For human beings, they can tackle such problem by means of changing the goals and objectives. However, when it comes to computers, it is difficult for traditional computing algorithm to adapt to such situation. However, this has been now made possible via cognitive computing. Cognitive computing assesses the conflicting data and accordingly suggest the best answer that suits the situation.           

 

How does cognitive computing work?

Cognitive computing integrates data from various sources. It then weighs the context and conflicting evidence to respond to the question. To achieve this goal, a cognitive system with self-leaning technologies via data mining, pattern recognition, and natural processing language understand how the human brain works.

In order to enable computers to work like the human brain require massive structured and unstructured data. The cognitive system gradually learns how to detect the pattern and the method of processing data & become efficient in anticipating the new problem and shaping a feasible solution.

What are the features of cognitive computing?

Cognitive computing involves the creation of a computer framework capable of solving complex problems without human interference. Thus, to implement the cognitive function in various applications, the cognitive computing consortium recommended a couple of features discussed below for the computing systems.

Adaptive:

Adaptive is the initial move in creating a machine learning-based cognitive system. The solution must be such that it mimics a human brain's capability to learn & adjust to the surroundings. In simple words, it is challenging to program a system for a particular task. Hence, the system needs to be dynamic with respect to collecting data, understanding goals and the requirement.

Interactive:

Like a human brain, the cognitive solutions must interact with other elements in the system like devices, processors, cloud, and human beings. These systems should interact bi-directionally and understand human input and provide appropriate outcome with the help of natural processing language and deep learning.

 Iterative & stateful:

The system should be such that it can remember the previous interactions in the process and return information that fits the specific application at a particular time. It should define the problem either by asking questions or looking for more sources. The feature requires careful application of data quality along with validation methodology to ensure that the system has ample information and its data sources which it uses to provide output, are updated.

Contextual:

The cognitive systems are capable of understanding, identifying and extracting contextual elements like meaning, time, location, user profile, tasks, goals etc.

 

What is the difference between artificial intelligence and cognitive intelligence?

People generally consider artificial intelligence and cognitive computing interchangeable. However, there is a big difference between the two. Let us look at the difference between the two:

Application of Cognitive computing:

Cognitive computing is capable of doing a task that humans can do. However, there are other areas as well where we can see the application of cognitive computing.

Creating new product categories:

Cognitive computing not only helps to improve the product and services, but it can also bring about new classes of product and services that can create a new market and generate huge gains for investors. An example of this is the product launched by Vantage software which is based on IBM Watson's cognitive computing technology.

Through this product, the user can study a number of pages of the document, explore available market intelligence, risk profiles and financial profile data and obtain improved information to analysts.

Automating internal processes:

Cognitive computing is used for automation. Because of automation, the task done by the users is now taken care of by the computers. The result is obtained at a faster rate.

Cognitive technologies can automate task by enhancing worker or by substituting them. By the term augmenting, we mean supporting workers to do the job at a better and faster rate. An example of this is the automated voice response system that has substituted human customer service agents for first-level customer support. Another example of this technology is driverless trucks for mining.

Creating insight:

Another application of cognitive computing is in creating insight. For example, natural processing language technique has made it possible to analyse a huge volume of unstructured textual information.  Through machine learning, it is possible to derive a conclusion from the large, complex dataset and provide superior predictions out of the operational data.

This technology is being used by various companies from reducing cost, improve efficiency, increase revenue, efficiency and enhance customer service.

Drawbacks of Cognitive Computing:

  • One of the major drawbacks of this technology is the security concerns as digital devices handle crucial information in cognitive computing.
  • Another concern related to this technology is that it is deliberately chosen by the individual, businesses, and the government.
  • Cognitive Computing systems and products have a longer development cycle.
  • It has created fear amongst people of losing their jobs.

In the recent past, the absolute return approach of Investing has turned out to be one of the fastest-growing investment strategies worldwide. A lot of financial advisors talk about such investments providing absolute returns. So, what exactly are the “Absolute Returns” and are they are promising? What is meant by Absolute return? Absolute return computes the increase or decrease, in an asset over a period of time, as a proportion of the original investment amount. The focus here is only on that specific asset or portfolio and not related market events. Absolute returns only consider the price movement for any specified time period. Absolute return, reckons an investment’s performance without considering the expanse of time for which investment was committed. Absolute returns can be computed for a quarter, semi- annual, annual period, 3-year duration or more. Absolute Returns are independent of Market movements and thus do not draw relative comparisons. It is one of the most commonly used investment performance metric in Hedge Funds and Mutual Funds. How to compute Absolute return? Suppose an investor Mr. Rich, invested AUD 50,000 5 years back, and the current value of his investment is AUD 75,000. The Absolute return on Mr. Rich’s investment would be 50 %, calculated using- Copyright © 2021 Kalkine Media Pty Ltd Copyright © 2021 Kalkine Media Pty Ltd So, Copyright © 2021 Kalkine Media Pty Ltd Absolute returns are just returns from point of time to other. The notion of an 'absolute return' seems very attractive to get investors’ attention as it ignores the relative market movement and promises an appreciation with zero correlation to markets. Anyhow, Absolute Return technique of computing investment yields is an apt way of calculating return on investment, predominantly in the early stages. There are numerous other types of return metrics an investor can look for later on. Major 4 types mattering most to investors being –  Absolute Return, Relative Return, Total Return & CAGR. What is the difference between Absolute Return, Relative Return, Total Return & CAGR? Absolute return refers to the gain/ loss in a single investment asset/ portfolio but to comprehend how their investments are acting relative to various market yardsticks, relative return is taken into consideration.   Relative return is the excess or deficit an asset achieves over a timeframe matched to a market index. Benchmark Return – Absolute return, gives the Relative return also called sometimes as alpha. Example, if S&P index gives a 10% return during a given period and one’s investment portfolio gives an absolute return of 12% then relative return on investment is positive/ excess 2%. Total returns take into account the effect of intermittent incomes as well as dividends. For example, in an equity investment of AUD 200 having current value AUD 240, the company also declares a dividend of AUD 10 during the year. Total returns will take into account this $10 dividend too. Thus, Total returns on the investment of AUD 200 now will be 25.00% = {(240+10-200)/200} x 100 Absolute and Total returns are easy to calculate as performance metrics, but the real challenge is when comparisons are drawn based on time period of return. Here comes in CAGR, it takes into account the term of the investment too, thus giving a more correct and comparable picture. It is computed as: CAGR (%) = Absolute Return / Investment period (equated in years) Consider for example, two investment options: One where investor earns absolute returns of 10% in 24 months and another where investor earns 5% absolute returns in 9-month duration. So, CAGR would be- For option one: CAGR = 5.00% i.e.  10%/2 (24 months/12 months is equals to 2 years) For option two: CAGR = 6.66% i.e. 5%/0.75 (9 months/12 months is equals to 0.75 years) What’s wrong with just measuring investment performance using Absolute Returns? Absolute returns will only tell an investor how much his/her investments grew by; they do not tell anything about the speed at which investments grew. When people talk about their real estate investments and say, “I bought that house for X in the year 2004. It’s worth 4X today! It has quadrupled in 17 years.” This is an application of absolute return. The drawback here is that it takes into account only the capital appreciation and doesn’t draw comparison with options having different time horizons. Investors can rely on this measure of investment performance only if they are looking for higher returns, without bothering how fast they were generated. Absolute return also doesn’t convey much about an investment compared to relative markets. Then, why do Hedge Fund/ Mutual Fund Managers choose an Investment strategy based on Absolute returns? Absolute returns should be used at times when investors are willing to shoulder some risk in exchange for a prospective to earn excess returns. This is irrespective of the timeframe and Fund administrators who measure portfolio performance in relation of an absolute return typically aim to develop a portfolio that is spread across asset categories, topography, and economic phases. They are looking for below mentioned points in their portfolios- Positive returns- An absolute returns approach of investment targets at producing positive returns at all costs, irrespective of the upside & downside market movements. Independent of yardsticks- The returns are in absolute terms and not in comparison to a benchmark yield or a market index. Diversification of portfolio- With the intention of distribution of risk, among different investment options producing positive returns in diverse ways a mixed bag of absolute return assets give a diversified investment portfolio. Less volatility- The total risk of investment is spread across the different asset held in such a portfolio. Ensuring less overall volatility in collective returns. Actively adjustable to market movements– Usually, investments look for positive returns with zero market correlation. Market shares a negative correlation with absolute return investments and vice versa. In any investment atmosphere, there are varied investment strategies and goals. Absolute return investment strategies are looking to avoid systemic risks using unconventional assets and derivatives, short selling, arbitrage and leverage. It is appropriate for investors who are prepared to bear risk for short and long-term gains.

In 2013, the television host of CNBC's Mad Money, Mr Jim Cramer addressed few stocks as “totally dominant in their markets”. He was referring to tech titans and named them FAANG stocks (where the extra “A” was added 5 years later, in 2017). ALSO READ: Investment in Technology Stocks - A Beginner's Guide What Are FAANG Stocks? “FAANG” is perhaps one of the most popular abbreviation of the business world. The acronym illustrates stocks of the famous five US-based technology corporations- first being social media giant Facebook Inc., followed by software and hardware developer Apple Inc., the e-commerce magnate Amazon.com Inc., and the streaming service provider Netflix Inc., along with the last FAANG member, internet ace Alphabet Inc. (formerly recognised as Google). Originally, the acronym was FANG (with an “A” for Amazon.). In 2017, investors included Apple in the group, turning the acronym into FAANG. There is an interesting fact here- The original four FANG stocks were pure internet-based companies, but the later inclusion of Apple, that is a consumer hardware manufacturer, made FAANG stocks a broader group of giant technology stocks. Widely renowned among consumers, unique in their products and services, these stocks are of few of the largest companies in the world. They trade on the NASDAQ Exchange and are included in the S&P 500 Index, making up approximately 15 per cent of the index. Market experts believe that since these stocks have a large influence on the index, they tend to have a substantial effect on the performance of the S&P 500, in general. GOOD READ: FAANGs Defining Resilience Amid Market Downtrends Why Are FAANG Stocks Popular?  FAANG companies exhibit several competitive advantages that make them attractive long-term investments. Consider this- Facebook rules social networking, Amazon is the one-stop destination to buy goods online in today’s digital world; Apple’s iPhones are one of the most used and well-renowned gadgets globally; Netflix is considered to be a leader of online streaming; whereas Google is the search engine used comprehensively almost every day, everywhere. These disruptive companies benefit from what is known as the network effect (indirect value goods and services gain as more people use them). Facebook’s products are valuable to new users because of its vast other active users. Amazon’s Prime service brings millions of shoppers to its marketplace every day, making its seller services more attractive to third-party merchants. Millions of Netflix viewers provide feedback for the kind of content the company should invest in. Lock-in effect of the Apple ecosystem creates substantial switching costs for iOS users. FAANG companies have intangible assets. This opens doors to the possibility of producing higher levels of profitability than rival companies. Consider this- Facebook, Amazon, and Google have troves of user data to pursue advertisements. Netflix offers original content, exclusive licenses that make its content library unique. Apple, on the other hand, is one of the few technology companies that makes hardware as well as software for its devices. FAANG players contribute to radical lifestyle change. One obvious reason for the popularity of these market darlings is that each FAANG company has been known to transform not just their own industries and the markets, but also how we all live in the current contemporary lifestyles. What is the significance of FAANG Constituents? As the heavy weighting of FAANG stocks in indexes like the S&P 500 gives them an outsized impact on the broader stock market, it seems worthwhile for investors to learn a bit about them. How is Investing Community Exposed to FAANG Stocks? FAANG stocks have historically outperformed the S&P 500 index. Over the last decade, this famous group accounted for a large portion of the market’s gains and American economy growth. This seems obvious given that FAANG companies have a hoard of competitive advantages making them seem like lucrative long-term investments. Offering perhaps the hottest technology trends, FAANG stocks demonstrate strong sales and earnings growth. Each FAANG company is listed on the NASDAQ, so purchasing their shares is a straightforward process for most investors. The easiest path could possibly be via online brokerage account with companies that offer this service. At this point, it should be noted that FAANG stocks aren’t cheap. For instance, for most of 2019, one share of Google sold for well over USD 1,000 and Amazon traded above USD 1,500. However, a wise investor knows that past results do not guarantee future success. Sinusoidal equity market trends deserve closer attention to a lot of other aspects before making any investment decision. Therefore, investing in FAANG stocks should be vigilantly based on one’s research of fundamental and technical aspects and risk appetite. GOOD READ: Investing Tips: 4 Reasons Big Techs can always stay your best pal Are There Any Risks Associated to Investing in FAANG Stocks? Market experts believe that there are no sure plays in the investing world. Simply put, there is a risk in every aspect of investing. Though favourable market conditions and investor enthusiasm for technology seems to be here for good, global uncertainties always should be considered. Overly bullish expectations coupled with certain political pressures and economic worries may hinder these big techs’ growth. Some experts opine that as these companies continue to mature amid mounting worldwide risks, it may get increasingly difficult for them to maintain their rapid growth pace. Legal Regulatory, market and operational risks of these FAANG players need to be considered before taking any exposure to FAANG stocks. Amazon and Google have often come under regulatory examination for potential anti-competitive business practices. Facebook and Google have faced criticism for lack of data privacy and security. On the other hand, Netflix has encountered new competitors in streaming video and as few reports suggest, a huge debt load linked with content production. Valuations of FAANG players should be well justified viz-a-viz earnings guidance of these players, before taking any investment exposure. Are There Global Peers to FAANG Stocks? Just like FAANG stocks, there are several groups of companies that can be looked upon as peers to the tech group. Let us cast an eye on similar groups- The Australian variant, WAAAX stocks comprises WiseTech Global Limited (ASX:WTC), Appen Limited (ASX:APX), Altium Limited (ASX:ALU), Afterpay Limited (ASX:APT) and Xero Limited (ASX:XRO). GAFAM is an acronym for the five most popular US. tech stocks: Google, Apple, Facebook, Amazon, and Microsoft.  BATX is the abbreviation for the four popular technology stocks from China: Baidu, Alibaba, Tencent and Xiaomi. TAND, which comprise of Tesla, Activision, Nvidia and Disney are often looked up as future giants of tech. TANJ stocks in Hong Kong comprise Tencent, Alibaba, NetEase and JD.com. The Canadian big tech club DOCKS constitutes Descartes Systems, Open Text, Constellation Software, Kinaxis and Shopify. Do You Know These Interesting Facts About FAANG Stocks? The FAANG group has been a stock market superstar on both short and long-term basis. These stocks have more or less consistently delivered above-average sales and profit growth and maintained juicy margins. Let us look at a few interesting facts about these tech titans- In August 2018, FAANG stocks were responsible for nearly 40 per cent of the S&P 500’s gain from the lows reached in February 2018. Over the past decade, FAANG stocks have grown faster than the overall S&P 500 or the more technology-focused NASDAQ. There is no exchange traded fund dedicated solely to FAANG stocks. Since the market bottom in March of 2009, the worst performing FAANG stock, Apple, has returned over double that of the index average. Amid the COVID-19 market downturn FAANG companies were one of the biggest beneficiaries as the “stay-at-home” economy led to an acceleration in their trajectories as people’s lives shifted online. Rather than resting on their achievements and dominant market position, FAANG companies choose to use their cash on hand to make investments in cloud computing, AI and other technologies that they believe may lead to continued revenue growth.

What are GAFAM Stocks? GAFAM Stocks are perhaps the most famous and sought-after stocks of the last decade. The dominance of these companies during the 2010s in the stock market will be remembered in the books and adages.  It is the creation of market participants that develop acronyms like GAFAM, which include five large American companies having dominance across most jurisdictions. GAFAM stands for Google, Apple, Facebook, Amazon, and Microsoft.  Over time these companies have gained dominance in their primary business. In addition, GAFAM stocks have been aggressive in expansion and entering new verticals.  Although there have been considerable acquisitions along the way, the investments in research & development and innovation have been at the forefront of the capital expenditure plans.  Google Officially known as Alphabet Inc., ‘Google is not a conventional company’ is a statement made by its founders in their early letters. It has not been a conventional company, indeed. Google has developed significant networking within its products.  As a dominant search engine of the world, Alphabet reaps large revenue through advertisements through its flagship search engine and other products. Over the years, the company has been able to expand in other verticals such as mobile phone operating system – Android, web browser through Google Chrome.  Alphabet has two operating segments. Under Google, the company houses Search engine, YouTube, Search, Google Play, Google Maps, Android, Chrome, hardware, Google Cloud.  In other bets, the company includes businesses that are not material individually. These businesses include Calico, Verily, Waymo, CapitalG, GV, X and more. Almost all revenue of Alphabet is derived by Google segment.  In 2019, Alphabet recorded revenue of $162 billion, and around $161 billion was derived from Google segment. Operating income of the company was $34.2 billion, while net income of the company was $34.3 billion.  Read: Unboxing Revenue Growth Streak of Google and Microsoft Apple  Established in 1977, Apple Inc. is a consumer electronic company engaged in manufacturing of various consumer products. Apple mobile phones are renowned across the world, and it also makes personal computers, wearables, tablets, and accessories.  iPhone is the flagship mobile operates on an in-house developed iOS operating system. Mac is a brand for its personal computers that are also used extensively across the professional domain. iPad is a line of tablets, which run on iPadOS.  Apple also sells other wearables and accessories that include Apple Watch, Apple TV, Beats products, iPod Touch, Airpods. The core strength of the company has been its capability to innovate and launch products continuously.  iCloud is its cloud service, and data of its products can be stored in the cloud. As a consumer business, it markets are focused small individual customers that do not constitute a material portion of revenue individually.  In 2019, Apple recorded revenue of $260.2 billion. Its operating income for the period was $64 billion, while net income was $55.25 billion.  Facebook  Facebook Inc. was established as a social networking website and has grown tremendously due to its strong networking effects. It enables people to connect with each other or in groups. Facebook is used in mobile phones, personal computers, handsets etc. It has been a great place to share opinion, ideas, videos and photos. With its large user base, Facebook and its products are used for advertisements. The traditional modes of advertisements have lost significant market share to companies like Facebook.  Instagram is also a part of Facebook. It is used by people across the world to share photos and videos. It also offers a similar type of services like Facebook and has emerged as a networking platform for digital creators and influencers.  WhatsApp is a messaging mobile phone application. It allows people to connect privately and is extensively used by people. Messenger is another application by Facebook that enables people to connect with family, friends, groups and businesses.  Oculus is the hardware business of Facebook that helps to connect people through its virtual reality products. A major portion of revenue is generated by marketing and advertisement through its products that are used by large scale potential consumers.  Watch: Facebook launching 'Shops' on its social Media Platform | Market Update Amazon Amazon.com, Inc. was established as e-commerce in 1994. The company serves consumers, sellers, developers, enterprises, and content creators. Amazon also provides advertising services to publishers, sellers, vendors, publishers, and authors.  It serves consumers through its online and physical stores. Amazon offers a range of categories and is has a strong online retail presence. It has been engaged in manufacturing consumer electronics such as Kindle, Fire TV, Fire Echo, Alexa, Ring etc.  Amazon Prime is a membership of the company that provides shopping benefits, streaming of entertainment content, including movies, original content. It intends to provide customers with low prices and home delivery of goods.  It also enables sellers to access Amazon marketplace, which includes stores and online website. Amazon earns through a percentage of sales, fixed fee, combinations etc. Amazon Web Services offers cloud service to a range of public and private enterprises to store data.  Kindle allows content creators to publish and sell content/books on Kindle and earn a royalty on sales. In 2019, the company recorded net sales of $280.5 billion. Operating income for the year was $14.54 billion, and net income was $11.59 billion.  Microsoft  Microsoft Corporation is a technology company that develops software, services, devices and solutions. Its products are extensively used by businesses and individual customers to operate personal computers.  Microsoft’s platforms allow improving small-businesses productivity, educational outcomes, driving competitiveness of large businesses. As a platform and tools provider, the company empowers enterprise and organisations of all sizes.  Now it is emphasising on innovation for the next phase of computing stage. Other than its legacy operating system, Microsoft provides cloud-based solutions, services, software, platforms, content, server applications, desktop management tools, software development tools etc.  It also designs and manufactures and sell devices, including gaming consoles, PCs, tablets, entertainment consoles, and related accessories. In 2020, the company recorded revenue of $143 billion. Operating income for the year was $53 billion, and net income was $44.3 billion. 

Behavioural Economics According to the school of classical economics, people are intrinsically rational, looking to maximise their utility, and make decisions that are best for oneself. A behaviourist is likely to challenge this school of thought, opining that people often times work irrationally, whether on purpose or not. How should the best parts of psychology and economics interrelate in an enlightened economist's mind? One of the greatest minds of the 20th century, Mr Charlie Munger stated that- “I don't think it's going to be that hard to bend economics a little to accommodate what's right in psychology.” Humans are emotional and easily distracted beings. Consequently, decision making may or may not be made in their self-interest always. Every day, humans make decisions as basic as what amount should one pay for lunch, whether one should pursue a course, invest in gym equipment or how much should be kept aside as monthly savings to making personal finance decisions. There is a dedicated branch of economics that seeks to explain why people decide, what they decide. This branch is called behavioral economics. Your brain effects your thinking- Making Wrong Investment Decision? Blame Your Amygdala! Let us deep dive- What Is Behavioural Economics? Behavioral economics combines understandings from psychology, judgment, decision making and economics with an intent to produce an accurate understanding of human behaviour. It relates to the economic decision-making processes of individuals and institutions. The concept explores reasons as to why people sometimes tend to make irrational decisions, why and how their behaviour does not follow predictions of economic models. It should be noted that behavioural economics focuses on the observable behaviour of humans and does not have strong theoretical or normative assumptions about how an economic system/ business sector or stock market works or should work. Read: Understanding Behavioural Finance & Investment Decisions Let us further break this down with an example: Unlike the field of classical economics, in which decision-making is entirely based on logic, behavioural economics gives room to irrational behaviour and further attempts to understand reasons behind the same. Brexit, for instance is a classic example of how behavioural economics can be useful because behavioural economics can help illuminate how the narrow vote to leave the European Union (EU referendum) was influenced majorly by gut choices, as some experts suggest, as opposed to rational decision-making. The Origin Of Behavioural Economics A keen observer of human behaviour, American economist Richard H. Thaler is broadly believed to be the founder of behavioural economics. He was awarded the 2017 Nobel Memorial Prize in Economic Sciences for his significant contributions to behavioural economics. Thaler’s opinions on the branch is believed to have been inspired by notable works of Israeli psychologist and economist Daniel Kahneman and cognitive and mathematical psychologist Amos Nathan Tversky. Daniel Kahneman also won a Nobel Memorial Prize in Economic Sciences in 2002 for his brilliant work on prospect theory, which he developed along with Tversky. Thaler is best known for incorporating psychological assumptions into analyses of economic decision-making. One of Thaler’s popular ideas – Nudge: Why Move the Earth When A Nudge Can Do! Simple Solutions to Complicated Problems What Are Various Themes Of Behavioural Economics? Three prevalent themes in behavioural economics comprise heuristics, framing and market efficiencies. Why Is Behavioural Economics Important? Behavioural economics provides new ways to think about barriers and drivers to a range of behaviours. This makes it significant, as traditional economic theory does not use insights from psychology, sociology and neuroscience to explain people’s decisions. So much so, behavioural economics seems to have the power to change the way economists and policymakers think about real world problems. Must read: How To Use Psychology To Aptly React To The Coronavirus Pandemic The field also builds a bridge between economic theory and reality- a bridge based on scientific evidence coming from disciplines in behavioural science. Some experts even regard behavioural economics as a counter-revolution, which takes economics closer to its roots, based on psychological intuition and introspection wherein psychology enacts a scientific discipline that can offer much more than merely intuitions and introspection. Besides, understanding basic concepts from behavioural economics can be very useful. It can help people be better negotiators.  How Does Behavioural Economics Influence Market Participants? Clearly, people don’t behave as rational, as traditional economists have assumed. They are affected by cognitive biases, are extremely influenced by other people and often practice herd mentality, have different perceptions about attitudes and behaviours. In context to the stock market, erroneous, irrational financial decisions are the result of different unpredictable reactions by market participants subject to losses and high market risks. Therefore, for decision-making, it is essential to consider all the factors in the market-which creates a place for behavioural economics besides accounting fundamentals, macro and micro-economic factors, economic projections, etc. Consider this- a sudden drop in the value of a few stocks followed by an equally rapid recovery, demonstrates that market participants did not cause such movements by rational choices but rather emotional reactions. Read: What does Fear Do to your Portfolio? Stocks that Scared Investors in 2019 No wonder Benjamin Graham, the father of value investing, and mentor of Warren Buffett the world’s best investor coined the term ‘Mr. Market.” Clearly, he understood there is more to market than numbers. Read: Are you a Growth Investor? Then You Must Wear the Hat of a Psychologist! Why Has Behavioural Economics Concept Risen Over The Years? Let us take cues from dramatic global events over the years- for instance the Great Financial Crisis of 2008 or the novel coronavirus crisis of 2020 (Global Virus Crisis, as some call it). Read: Things to Learn from Past Crises: Role of Financial Planners During Times of Crisis These could not be explained by traditional neoclassic economic models though the impact of these events has been beyond massive. Therefore, other schools of economic thought gained traction and behavioural economics was one such concept. Businesspersons seemed to make decisions based on their emotional state of mind while investors demonstrated nervousness that caused a massive sell off to an extent that circuit breakers had to be launched while. Acts of spontaneity, irrationality, impatience, and herd mentality amid incidents of recent years have paved the way for economists to believe that the human mind is a crucial key to understand economic patterns, financial decisions and eventually- market and economic stances. Do You Know Few Top Behavioural Economists? Besides the foundation setters Kahneman, Tversky and Thaler, a number of economists, and psychologists have emerged as prominent figures within the field of behavioural economics over the years- Behavioural economics enhances the explanatory power of economics as it provides it with a firm and more rational psychological basis. It surely is a way to make economics more accurate by incorporating more realistic assumptions about how humans behave. Besides, good understanding of human decision-making, its rational and irrational aspects, offers opportunities of influencing choices that take better account of how people actually respond to the context within which their decisions are made. There are various to help one not fall prey to behavioural traps, mind you, knowledge alone does not help, but an ability to look at bigger picture and through the eyes of various mental models would help one reduce the errors. Eliminating behavioural errors would not be possible or rather would one be flawless and loose the human touch? Read: All I want to know is where I am going to die so that I’ll never go there- Inversion a Power Tool

We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it. OK