Founding Director, Prospecta Limited, Lecturer, University of Edinburgh
Most people want to be good. Yet, we still stumble occasionally into bad ethical choices. The reason, though, is rarely a moral failing. It is more likely due to blind spots in our decision processes, distractions in our environment or the absence of practical methods to advocate for an ethical course of action without ruining our relationships and careers. The challenge for most of us is not recognizing the difference between right and wrong – it is getting the right thing done. So, behavioral ethics seeks instead to disrupt those processes, to set up timely prompts and, most importantly, to equip us with the scripts and the actions to enable us to be the kind of person we already want to be, more of the time.
Kahneman and Tversky's Prospect Theory is a cornerstone theory in the academic discipline of Behavioural Finance, yet many professional investors do not see how it relates to their daily work, or how it can help them understand and predict asset prices. This talk will reveal what we consider to be the two most important practical implications of prospect theory in asset pricing: price momentum and investors' preferences for skewness in the distribution of returns.
Herman Brodie is the founding director of Prospecta Limited. He is a specialist in behavioral economics, an accomplished speaker and a trainer of decision-makers. Brodie is the author of The Trust Mandate: The behavioural science behind how asset managers REALLY win and keep clients (2018, Harriman House). He also co-wrote and teaches the professional investment course, A Practical History of Financial Markets.