Page 185 - Psychology of Money - Timeless Lessons on Wealth, Greed, and Happiness-Harriman House Limited (2020)

The people were more addicted to prophecies and astrological conjurations,
dreams, and old wives’ tales than ever they were before or since …
COBACOBA
almanacs frighted them terribly … the posts of houses and corners of streets

were plastered over with doctors’ bills and papers of ignorant fellows,
quacking and inviting the people to come to them for remedies, which was
generally set off with such flourishes as these: ‘Infallible preventive pills
against the plague.’ ‘Neverfailing preservatives against the infection.’
‘Sovereign cordials against the corruption of the air.’

The plague killed a quarter of Londoners in 18 months. You’ll believe just
about anything when the stakes are that high.

Now think about how the same set of limited information and high stakes
impact our financial decisions.

Why do people listen to TV investment commentary that has little track
record of success? Partly because the stakes are so high in investing. Get a

few stock picks right and you can become rich without much effort. If
there’s a 1% chance that someone’s prediction will come true, and it coming
true will change your life, it’s not crazy to pay attention—just in case.

And there are so many financial opinions that once you pick a strategy or
side, you become invested in them both financially and mentally. If you
want a certain stock to rise 10-fold, that’s your tribe. If you think a certain
economic policy will spark hyperinflation, that’s your side.

These may be low-probability bets. The problem is that viewers can’t, or

don’t, calibrate low odds, like a 1% chance. Many default to a firm belief
that what they want to be true is unequivocally true. But they’re only doing
that because the possibility of a huge outcome exists.

Investing is one of the only fields that offers daily opportunities for extreme
rewards. People believe in financial quackery in a way they never would
for, say, weather quackery because the rewards for correctly predicting what
the stock market will do next week are in a different universe than the
rewards for predicting whether it will be sunny or rainy next week.