Thursday, November 19, 2015

William James, pragmatism, and money management

What holds attention, determines action. 
-William James 

William James is one of the great American philosophers of the 19th century and considered the father of American psychology. He was one of the founders of the pragmatism school of philosophy. His pragmatism let simple reflections drive his philosophical thinking. For example, he thought true beliefs are those that useful to the believer. Truth and usefulness go together.

His quote tells us he had an innate sense of behavioral finance even though he did not trade. We have a recency bias and a small sample bias which causes us to extrapolate. There is an availability heuristic which uses the information that is more readily available or apparent to make our decisions. James understood how the simple could attract action for better or worse. 

While he never was a speculator, my guess is that he would have been a very successful money manager following simple rules as a practical application of theory. Pragmatism is an excellent foundation for good money management. 

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