In his new book, “What Investors Really Want,” Meir Statman, professor of finance at the Leavey School of Business, Santa Clara University, presents a rich pageant of insight that can be used by defined contribution plan executives to understand individual investment motivations.
Subtitled “Discover What Drives Investor Behavior and Make Smarter Financial Decisions,” the book is designed for individuals. But DC plan officials could take advantage of the author's expertise in behavioral finance. Mr. Statman explores investor decisions through such behavioral finance tendencies as cognitive errors, framing errors, representative errors, confirmation errors, hindsight errors — all factors that cloud judgment. His viewpoint is often surprising.
“Herd behavior in investments can be beneficial,” he writes. Other times, investors “are stupid as they join herds.”
“But how can investors tell the difference?” He answers his question by writing: “Good judgment of information is one part of the answer. Good assessment of the consequences of a wrong choice is another.”
Mr. Statman attempts to guide investors to be better, with lots of details and examples of real people, and sourcing with extensive footnotes from anecdotal to academic research.