financial panic.
The lesson here is that it's silly to try to beat the market with your brain. Dopamine neurons weren't designed to deal with the random oscillations of Wall Street. When you spend lots of money on investment-management fees, or sink your savings into the latest hot mutual fund, or pursue unrealistic growth goals, you are slavishly following your primitive reward circuits. Unfortunately, the same circuits that are so good at tracking juice rewards and radar blips will fail completely in these utterly unpredictable situations. That's why, over the long run, a randomly selected stock portfolio will beat the expensive experts with their fancy computer models. And why the vast majority of mutual funds in any given year will
underperform
the S&P 500. Even those funds that do manage to beat the market rarely do so for long. Their models work haphazardly; their successes are inconsistent. Since the market is a random walk with an upward slope, the best solution is to pick a low-cost index fund and wait. Patiently. Don't fixate on what might have been or obsess over someone else's profits. The investor who does nothing to his stock portfolioâwho doesn't buy or sell a single stockâoutperforms the average "active" investor by nearly 10 percent. Wall Street has always searched for the secret algorithm of financial success, but the secret is, there is no secret. The world is more random than we can imagine. That's what our emotions can't understand.
2
Deal or No Deal
is one of the most popular television game shows of all time. The show has been broadcast in more than forty-five different countries, from Great Britain to Slovakia to America. The rules of the game couldn't be simpler: a contestant is confronted with twenty-six sealed briefcases each full of varying amounts of cash, from a penny to a million dollars. Without knowing the amount of money in any of the briefcases, the contestant chooses a single one, which is then placed in a lockbox. Its contents won't be revealed until the game is over.
The player then proceeds to open the remaining twenty-five briefcases one at a time. As the various monetary amounts are revealed, the contestant gradually gets an idea of how much money his or her own briefcase might contain, since all the remaining amounts are displayed on a large screen. It's a nerve-racking process of elimination, as each player tries to keep as many of the big monetary sums on the board for as long as possible. Every few rounds, a shadowy figure known as the Banker makes the player an offer for the sealed briefcase. The contestant can either accept the deal and cash out or continue to play, gambling that the unopened briefcase contains more money than the Banker has offered. As the rounds continue, the tension becomes excruciating. Spouses start crying, and children begin screaming. If the wrong briefcase is picked, or the best deal is rejected, a staggering amount of money can evaporate, just like that.
For the most part,
Deal or No Deal
is a game of dumb luck. Although players develop elaborate superstitions about the briefcasesâodd numbers are better; even numbers are better; ones held by blond models are betterâthe monetary amounts in them are randomly distributed. There is no code to crack, no numerology to decipher. This is just fate unfolding in front of a national television audience.
And yet,
Deal or No Deal
is also a game of difficult decisions. After the Banker makes an offer, the contestant has a few minutesâusually the length of a commercial breakâto make up his mind. He must weigh the prospect of sure money against the chances of winning one of the larger cash prizes. It's almost always a hard call, a moment full of telegenic anxiety.
There are two ways to make this decision. If the contestant had a calculator handy, he could quickly compare the average amount of money he might expect to win against the Banker's offer. For example, if there were three
The lesson here is that it's silly to try to beat the market with your brain. Dopamine neurons weren't designed to deal with the random oscillations of Wall Street. When you spend lots of money on investment-management fees, or sink your savings into the latest hot mutual fund, or pursue unrealistic growth goals, you are slavishly following your primitive reward circuits. Unfortunately, the same circuits that are so good at tracking juice rewards and radar blips will fail completely in these utterly unpredictable situations. That's why, over the long run, a randomly selected stock portfolio will beat the expensive experts with their fancy computer models. And why the vast majority of mutual funds in any given year will
underperform
the S&P 500. Even those funds that do manage to beat the market rarely do so for long. Their models work haphazardly; their successes are inconsistent. Since the market is a random walk with an upward slope, the best solution is to pick a low-cost index fund and wait. Patiently. Don't fixate on what might have been or obsess over someone else's profits. The investor who does nothing to his stock portfolioâwho doesn't buy or sell a single stockâoutperforms the average "active" investor by nearly 10 percent. Wall Street has always searched for the secret algorithm of financial success, but the secret is, there is no secret. The world is more random than we can imagine. That's what our emotions can't understand.
2
Deal or No Deal
is one of the most popular television game shows of all time. The show has been broadcast in more than forty-five different countries, from Great Britain to Slovakia to America. The rules of the game couldn't be simpler: a contestant is confronted with twenty-six sealed briefcases each full of varying amounts of cash, from a penny to a million dollars. Without knowing the amount of money in any of the briefcases, the contestant chooses a single one, which is then placed in a lockbox. Its contents won't be revealed until the game is over.
The player then proceeds to open the remaining twenty-five briefcases one at a time. As the various monetary amounts are revealed, the contestant gradually gets an idea of how much money his or her own briefcase might contain, since all the remaining amounts are displayed on a large screen. It's a nerve-racking process of elimination, as each player tries to keep as many of the big monetary sums on the board for as long as possible. Every few rounds, a shadowy figure known as the Banker makes the player an offer for the sealed briefcase. The contestant can either accept the deal and cash out or continue to play, gambling that the unopened briefcase contains more money than the Banker has offered. As the rounds continue, the tension becomes excruciating. Spouses start crying, and children begin screaming. If the wrong briefcase is picked, or the best deal is rejected, a staggering amount of money can evaporate, just like that.
For the most part,
Deal or No Deal
is a game of dumb luck. Although players develop elaborate superstitions about the briefcasesâodd numbers are better; even numbers are better; ones held by blond models are betterâthe monetary amounts in them are randomly distributed. There is no code to crack, no numerology to decipher. This is just fate unfolding in front of a national television audience.
And yet,
Deal or No Deal
is also a game of difficult decisions. After the Banker makes an offer, the contestant has a few minutesâusually the length of a commercial breakâto make up his mind. He must weigh the prospect of sure money against the chances of winning one of the larger cash prizes. It's almost always a hard call, a moment full of telegenic anxiety.
There are two ways to make this decision. If the contestant had a calculator handy, he could quickly compare the average amount of money he might expect to win against the Banker's offer. For example, if there were three
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