Economic Rockstar

Connecting Brilliant Minds in Economics and Finance

047: Victor Ricciardi on The Psychology of Financial Planning and Investing

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047: Victor Ricciardi on The Psychology of Financial Planning and Investing

Victor Ricciardi is Finance Professor at Goucher College, Baltimore, Maryland where he teaches courses in Victor Ricciardipersonal financial planning, corporate finance, investments, behavioral finance, and the psychology of money.

Victor is the Coordinator of Behavioral & Experimental Research for the Social Science Research Network also known as SSRN.

Victor is the current Editor for seven SSRN eJournals including Behavioral & Experimental Finance, History of Finance, and Behavioral & Experimental Economics.

He received his PhD from Golden Gate University and his MBA from St. John’s University.

Victor’s current book Investor Behavior: The Psychology of Financial Planning and Investing with co-editor Kent Baker is now available and has 30 chapters on emerging research in behavioral finance.

In this episode, you will learn:

  • the difference between Behavioral Economics and Behavioral Finance.
  • the rational approach to investing and whether it exists.
  • what bounded rationality really means.
  • if companies help you make decisions for their own personal benefit.
  • how framing can be a powerful tool to help customers make decisions.
  • the importance of financial literacy at different stages of your life.
  • the similarities between behavioral economics and marketing.
  • the future of Behavioral Economics and Behavioral Finance.
  • how your mood, good or bad, can influence your buying behaviour and increase risk-taking.
  • about the importance of studying the subconscious mind in finance or neurofinance.
  • why people generally do not take losses, known as loss aversion.
  • why Victor disagreed with the traditional views of economics and decided to study behavioral finance.
  • how and why some governments are using behavioural finance and economics techniques to nudge us to make better financial decisions in our lives.
  • how status quo bias makes it harder for employees to opt out of an automatically enrolled savings retirement plan.
  • how mounting student debt and high youth unemployment in the US could make it difficult to service pensions leading to a pension ‘ponzi’ scheme or a crisis.
  • why Victor Ricciardi believes that there should have been a law designed to make retirement planning easier for the employee.
  • what you should do when investing so as to manage bull and bear market cycles.

Economics:

In this interview, Victor mentions and discusses: behavioral Economics, Behavioral Finance, rational, bounded rationality, heuristics, framing, annuity puzzle, investment, consumption, self-control bias, nudging, consumer behavior, mutual returns, savings, investments, neurofinance, risk tolerance, over-confidence, loss aversion, nudging, status quo bias, retirement planning and wage inflation.

Economists:

In this interview, Victor mentions and discusses: Richard Peterson, Douglas Rice, Daniel Kahnemann, Amos Tversky, Robert Olson, Richard Thaler and Hersh Shefrin.

Influencers:

William Sharpe, Harry Markovicz, Terence Odean, Robert Olsen, Dan Ariely, Mair Stockman, Hersch Shefrin and John Nofsinger.

Quotes by Victor Ricciardi in Episode 047 of the Economic Rockstar Podcast:

Behavioural Finance is the notion of integrating psychology with finance. So you’re looking at some major themes where people are not only rational but they make decisions based on emotions. – Victor Ricciardi

Risk tolerance is the maximum amount of risk a person is willing to take in their overall portfolio or risky asset. Typically, people are either very conservative risk-takers, they’re average or they’re very aggressive. The component of risk tolerance that’s related to it is known as ‘Risk Perception’, in which our feelings and emotions will increase or have an impact on our overall risk tolerance. – Victor Ricciardi

Takeaway:

Meet with a financial planner and get a financial plan done. In terms of investing, try to understand what type of investor you are and come with an asset allocation that you are comfortable with. Rebalance your portfolio on a year basis which allows you to stay within your risk tolerance. – Victor Ricciardi

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Conor McGregor is Homo Economicus: I’m Going To Whoop His Ass

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Conor McGregor is Homo Economicus: I’m Going To Whoop His Ass  

Conor-McGregor Colm O'Connor

Graphic Design and Illustration by Colm O’Connor www.colmoconnor.com

The Notorious Conor McGregor is one of Mixed Martial Arts (MMA) foremost fighters today. He has come from a life of obscurity to UFCs most feared and respected cage fighter today. What will McGregor do to take the UFC title from Jose Aldo? Is McGregor unstoppable? Will McGregor take down everyone in his path to this title? Is McGregor so focused on the prize that he cares less about how much damage he will do to others? Conor McGregor is Homo Economicus.

Is Conor McGregor the Perfect Example of Homo Economicus?

Economics is a social science and the Greek scholar Hesiod (700 – 650 BC) is considered to be first economist when he wrote about scarcity and resources: “…through work men grow rich in flocks and substance…” The term ‘Homo Economicus’ is the central theme to which the study of modern economics has evolved, and is considered to be first mentioned in the 19th Century works of J.S. Mills. Homo Economicus or Economic Man represents a rational person who aims to maximise their abilities in order to seek an optimal or best outcome. Such a rational person is considered self-interested and is destined to achieve their targeted aims irrespective of its undesirable effects on others.

So does McGregor fit Mills’ “arbitrary definition of man, as a being who inevitably does that by which he may obtain the greatest amount of necessaries, conveniences, and luxuries, with the smallest quantity of labour and physical self-denial with which they can be obtained”?

Let’s Get Rich

Is McGregor a rational, self-interested man with the sole determination of acquiring wealth or success without any heed for others and given the constraints that he faces? Yes! But only in the cage.

McGregor admits that money was never his objective when learning the art of fighting: “I’d rather be poor. I’d rather have no money and just be training than in a job I don’t love”. This attitude appears to defy the ideas behind Homo Economicus, but McGregor’s focus is in the octagon and not in the office. McGregor trains extremely hard, both physically and mentally, so that he is in the best shape possible for a fight. He’s aiming to maximise his strengths and abilities to win.

McGregor wants to make his riches doing what he is passionate about. “Competing is what I love to do and money is what I love to get”. He described his fight with Dennis Siver in Boston on January 18th, 2015 as “a keep fresh, get rich fight”.

Is he self-interested? When it comes to fighting, his focus is on winning. There is no room for cooperation and McGregor will achieve success irrespective of the undesirable effects on others.

  • McGregor visualized his Las Vegas fight with Dustin Poirier:

I believe that we will both come forward. I will crack him one or two. He will panic, he might rush in, I will crack him again, and then the fight will be done. I don’t believe he has many shots left in him and I don’t think he can take many of my shots. I will hurt him in the first couple of exchanges and then I will begin to play, to experiment. I am going to come out of the gates, spinning, flying through the air, and I will crack him with something that will put him down, and I believe it will be a first round stoppage.

  • Likewise, in a Q&A session for UFC178 in Las Vegas 2014, McGregor said what he’s prepared to do in order to win the Featherweight Title: “I will collect heads on the way to that goal… I will go over to Brazil as well and take out every man, woman and child to get that belt”.
  • In the same interview, McGregor mentioned that he didn’t like California and preferred his hometown, Dublin stating: “I’m over here conducting business, you know, and I don’t really care about anything else”.

McGregor shows all the characteristics that underpins the concept and ideals of Economic Man – someone who will fulfil a desired outcome irrespective of the undesirable effects on others.

Where to Find Conor McGregor:

Frank Conway is the author of this post. To read other posts by Frank you can visit Economic Rockstar or listen to the podcast on iTunes.