Human brain does not behave rationally all the time and to explain how humans act in a non-rational way, you can think of human brain divided into two systems. System 1 is linked to low effort, automatic operations like unconscious reasoning whereas System 2 contributes to high effort and controlled operations like conscious reasoning.
System 1 (the low effort system) feeds from our personal experiences (good or bad) and you can say that the more familiar a certain operation is for us, higher is the probability of activating System 1. Taking example of chess players, a research has shown that a noob (or newbie) playing chess requires a lot of effort and time to calculate the next move whereas a chess master feeds from his experience and call backs from his memory, what should be the next move.
Masters will search for the same no of possibilities or even fewer relative to the noobs, but the difference lies in the fact that they are very good at coming up with the right moves while weaker opponent spends handsome amount of time analyzing the consequences of bad moves.
What this portrays is that human brain which feeds from automated process (linked to long term memory) is not under our control, doesn’t follow logic and inevitability leads to BIASES. In field of finance, investors are laden with biases (consciously or unconsciously) while taking investment decisions and it is essential to discover them, accept them and take timely corrective measures to avoid costly mistakes.
Another realm to human brain lies in the field of Emotional Intelligence which can be roughly stated as the ability to monitor one’s own and others’ feelings, to discriminate among them, and using this information to guide one’s thinking and action. Research has shown that Managers higher in EI are better able to cultivate productive working relationships with others and to demonstrate greater personal integrity.
So, does Emotional intelligence correlates with Investment biases? Are emotionally intelligent investors prone to less investment bias? And does gender play a specific role in being emotionally intelligent and a better investor?
I’m sure these questions might pop in your head as they did in mine which led me to conduct a small research on this topic. I would like a few minutes of yours to fill the Survey attached below and help this newbie take baby steps towards the Master. Your input will be highly valuable 😊