The Best Tricks of the Last Nobel Prize in Economics for Investors | Empirex Capital

The Best Tricks of the Last Nobel Prize in Economics for Investors

The last Nobel Prize in Economics, Richard Thaler, in his 'push theory' gives some clues for investors. Known for his theoretical contributions in behavioral finance and for his collaboration with Daniel Kahneman and others in the advanced definition of this field. In 2017, he was awarded the Bank of Sweden Prize in Economics in memory of Alfred Nobel for his contributions to behavioral economics.

Richard Thaler, the last Nobel laureate in economics, is one of the great experts in this field. In fact, he is known for his ‘push theory’ in which he investigates the mechanisms behind investor decision-making, which are not always entirely rational.

Benjamin Graham, father of value investing, said that "the investor's worst enemy is probably himself." When investing, rational decisions are made, but also emotional ones. Behavioral economics (behavioral finance, in English) is responsible for analyzing these types of decisions.

From the investment fund Empirex Capital we ask ourselves "What can investors learn from the Nobel Prize winner?" Our experts say that Thaler's research is key to understanding economics and finance from the point of view of how people actually behave.

There are three tips that investors can extract from the latest Nobel Prize in economics:

Bias drives the market

The bias of investors, more willing to sell or buy, can affect the behavior of the stock market, according to experts. A specific situation that can end up generating extreme and varied movements in stock prices.

Short-term obsession

Investors who focus too much on the short term may miss opportunities, according to Thaler's approach. Experts note that "long investment horizons matter" and "investors who focus on the short term miss out on those opportunities."

Different news, different behavior

"Stocks react differently to the news," they warn. As they point out, "experience in analysis and investment is needed to analyze how stocks might react." Thus, the same information may have a different impact on one or another action.

What is a push or nudge?

Finally, the concept of "nudging" (a term coined by Thaler) is the way to "push" the population to make decisions that benefit them in the long term, something that influences both the economy and politics.

Created on 12th Aug 2021

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