Good reasoning skills are supposed to be the route to wise decisions. Yet since the late 1950s, psychologists have been conducting experiments which show that humans are really bad at reasoning. The psychologists contend that a host of inner emotions and mental biases cloud our view of reality and keep us from objectively assessing evidence.

Early market thinkers warned about two powerful emotions—fear and greed—which had profound and detrimental effects on investors’ decision making. Greed was thought of as an insatiable desire for wealth that kept feeding on itself until, finally, the god of Avarice threw a bolt of bad luck the investor’s way and a good deal of the wealth disappeared. Fear, on the ...

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