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Weekend Reading: The Undoing Project Edition

Long-time readers know I’m fascinated with behavioural psychology and how we make decisions, particularly about money. Of course, the most influential research in this field came from Daniel Kahneman and Amos Tversky. Kahneman won a Nobel Prize in 2002 for his and Tversky’s work on judgement and decision-making (Tversky died in 1996), and his book, Thinking, Fast and Slow, helped me recognize my own behavioural biases.

I’m also a big fan of author Michael Lewis’ work, and so I was beyond excited to learn that Lewis’ latest book, The Undoing Project, would explore Kahneman and Tversky’s friendship and their ground-breaking research that led to the creation of behavioural economics.

The Undoing Project

The Undoing Project

The Undoing Project doesn’t disappoint. Some of the insights into evidence-based medicine is simply astonishing. For example, if you wanted to know whether you had cancer or not, you were better off using a simple algorithm that researchers created than you were asking the radiologist to study the X-ray. The algorithm not only outperformed a group of doctors, it outperformed the single best doctor. It turns out, even the experts are human!

On our flawed decision-making and predictions, Tversky noted:

  • People predict by making up stories.
  • People predict very little and explain everything.
  • People live under uncertainty whether they like it or not.
  • People believe they can tell the future if they work hard enough.
  • People accept any explanation as long as it fits the facts.
  • The handwriting was on the wall, it was just the ink that was invisible.

Danny and Amos believed they could use their new understanding of the systematic errors in people’s judgement to improve that judgement – and, thus, to improve people’s decision making. They did, and the evidence is everywhere from economics to medicine to government policy.

Give it a read. It will change your mind.

This Week’s Recap:

On Monday I wrote about the difference between human capital and financial capital when it comes to building wealth.

On Wednesday Marie looked at why we often create overly complicated portfolios.

And on Friday we opened the Boomer & Echo mailbag to answer a question about opening a TFSA for your adult child.

Coming up in the next week or two we’ll share some different ways to get your international diversification, reveal a new partnership that should excite rewards points fans, plus we’ll have some interesting content lined-up for Financial Literacy Month in November. Stay tuned!

Weekend Reading:

Create a legal will online for as little as $99? It’s possible now thanks to tech start-up Willful. I like the concept because many people are too intimidated to visit a lawyer on their own and go through the process, which can also be expensive for a basic plan. Willful founder Kevin Oulds describes their process as similar to doing your taxes through TurboTax.

Finally, a fin-tech idea that doesn’t centre around expensive borrowing and free credit scores.

The Federal Liberals had a good news story to tell last week – the economy is performing better than expected – but a series of missteps over small business tax reform, plus the Finance Minister’s own lack of disclosure of his personal interests, seems to have undermined their credibility.

Part of the good news story in last week’s Fall Economic Statement was the announcement that Canada Child Benefit payments will be indexed to inflation starting in July 2018.

Canada Revenue Agency is still experiencing major delays processing claims and assessments amidst a massive re-organization. Things seem to be getting worse since I submitted a simple T1 adjustment back in March and waited 20 weeks for it to be processed.

Steadyhand’s Scott Ronalds wants to know why investors and financial news media make such a big deal when markets hit new highs:

“This phrase annoys me because it’s often used as a scare tactic, inferring that because the market’s at an all-time high, it’s due to crash soon.”

Jack Bogle and Nobel winner Richard Thaler both know this one thing about smart investing.

A guest author on the My Own Advisor blog describes his early retirement litmus test.

Investors everywhere think a 5-star rating from Morningstar means a mutual fund will be a top performer—it doesn’t. The Wall Street Journal investigates the Morningstar Mirage.

Do investors really underperform the investment vehicles in which they invest? DALBAR – a market research firm – has annually reached this conclusion for the past 23 years. This article claims that DALBAR might have been making a serious calculation error by using time-weighted returns instead of money-weighted returns. DALBAR’s response at the end of the article is well worth the read.

In this CBC Go Public report, a TD insider says the bank doesn’t want you to know it’s outsourcing work overseas.

Your Canadian Tire Money could be priceless. A 1989 note recently went up for auction with a reserve price of $3,000.

Finally, the Globe & Mail is conducting a survey asking when you reached life’s financial milestones. They’re curious to see if today’s economy has shifted the basic personal finance timetable of life.

Have a great weekend, everyone!

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10 Comments

  1. DavidS on October 29, 2017 at 7:33 am

    Do you know how Wills and Powers of Attorney documents created using Wilful’s online system are any different than say using a Do-it-yourself Will kit? I’ve often heard about how the DYI Will kits are risky and should never be used.

    I’d like to think Wilful is different and equals those offered by Wills and Estates law firms. The pricing model is certainly very attractive and the fact you can make free updates to your documents anytime is awesome.

    • Echo on October 29, 2017 at 11:41 am

      Hi David, thanks for your comment. I’ve asked the Willful founder to stop by and answer your question. I’d love to know the answer myself.

      • Kevin Oulds on October 29, 2017 at 12:15 pm

        Hey David,
        Thanks for your interest and questions about Willful. We are a lot different than a do-it-yourself will kit, with those it’s a one size fits all document with little or zero customization available. With ours, the final will content will change based on your answers as you go through the process – for example someone with kids or someone without will have a different end product.

        Another problem that we try to eliminate with technology is people using improper capitalization of names for the testator (will owner), executor, and beneficiaries.

        Lastly when it comes to signing a will properly to make it legal, that’s when people using will kits can get things wrong. Our software will let you know who can sign your will, and who should not sign your documents based on the text you entered into our software (for example anyone benefitting from the will and their spouses cannot sign the will).

        I hope this answered your questions, please feel free to reach out personally to me with any other questions you might have at kevin@willful.co

        Cheers,

  2. Jan on October 29, 2017 at 8:15 am

    I couldnt access the WSJ article because I am not a subscriber. Is there another link to access this article? Love your blog.

    • Echo on October 29, 2017 at 11:42 am

      Hi Jan, thanks for the kind words. Try going through this link from their Twitter account. It displayed the full article for me: https://mobile.twitter.com/wsjpersfinance/status/923249852695351296

      • Jan on October 29, 2017 at 2:30 pm

        That link worked. The article was quite the revelation as to the difference between what the star rating system was designed for and how it used by professional and non professional advisors and investors. Thank you. I will change how much reliance I put on the star system.

  3. GYM on October 29, 2017 at 4:37 pm

    Thanks for sharing the online Will product. I’ll forward it to my Boomer parents who do not have a will yet lol! We also need to look into a will now that we have a little one and I have a feeling I will get a will before my parents do.

  4. Owen @ PlanEasy.ca on October 30, 2017 at 7:08 am

    Willful looks pretty neat. My wife and I need to get wills setup so I’m going to check them out. Thanks!

  5. Alan on October 30, 2017 at 7:53 pm

    Thinking, Fast and Slow was a book that changed my life, so I immediately ordered The Undoing Project for my kindle.

  6. Ginette Holland on November 6, 2017 at 2:24 pm

    Checked out Online Wills and it looks like a great concept: for the moment it only works for Ontario, you can sign up to be notified when it is rolled out to your province: BC and Alberta next. I am looking forward to be able to use it in BC.

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