Chapter 6The Power of Fear and Decision Fatigue

Jacobian Inverse: So that I don’t suffer any anxiety, fear, or uncertainty, I will invest only in investments that I am excited about and where there is an abundance of capital. It feels a lot better investing in companies that everyone likes and that have done well rather than buying businesses that no one likes and are doing poorly. I don’t want to feel uncomfortable in the investment process at all.

This inversion should help you realize that if you are feeling concerned or uncomfortable and you’re in a cognitive battle, you may be buying a business at the right price. Remember, when you buy low, the news, the enthusiasm and your emotions surrounding the business are not good.

Let’s play a little game. Let’s say I gave you $25 to bid on an item at an auction. It’s a small item, but I told you that if you won the auction, you could keep whatever was left over from the original $25. How aggressively would you bid? Probably not that hard. It’s not your money after all. But what if I gave you $25 and told you the only way to keep it was to win the auction? Would that change your perspective? Would you bid harder because not winning would cost you $25? Well, science tells us that the answer to this last question is a resounding yes.

Scientists at New York University conducted a very similar study in 2008, using imaging technology to study brain activity among people given a lottery ticket and those given money to bid at an auction. ...

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