It has been 40 years since the great explosion of research on documenting behavioral biases in economics and finance. The list is extensive. There was no one single research event that pushed the change in thinking from efficient markets and super rationality to a more nuanced view concerning biases. It started as a crack in the existing paradigm and just kept getting bigger as an important area of research as more biases were documented.
By this time, one should expect that all the biases should have bene stamped out. Nothing to see here, we got this under control. Yet, the biases still exist. We still make mistakes. The problem has not been solved.
So, what is it about human nature that makes it so easy for even very smart people to follow their biases. I don't know. How do we change behavior?
Perhaps it just is not possible to make these changes. Biases are a part of being human. The only solution is to turnover your decisions to a set of rules that will eliminate the biases. I cannot help myself, so I am going to have to have an outside force bind me to good behavior. This is the foundation of quant investing - forcing good behavior on fallible humans.
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