This week's letter is from my favourite behavioural finance thinker, James Montier of Dresdner Kleinwort Wasserstein in London. James wrote a fascinating book two years ago called "Behavioural Finance: A User's Guide" and puts out ongoing research like the one we will enjoy today. Long time readers will recognise the name because I have discussed many of his ideas in my weekly letter "Thoughts From the Frontline" and my book "Bull's Eye Investing."
In the past we have looked at individual behavioural biases. This report by James explores why groups of otherwise intelligent people often make worse decisions as a group. You would think that the collective minds of a committee, sharing data and experiences, should perform better than the individual. But that is not always the case. A Camel, it is said, is a horse designed by a committee. Many of the examples will probably give you an "aha" moment, and in the end some strategies to overcome group behavioural biases are suggested. Let's see if James can make you think "Outside the Box."
John Mauldin, Editor
Outside the Box
Are two heads better than one?
Do you conduct your asset allocation via committee? Or perhaps you sit on a stock selection committee? If so perhaps you should read on. Psychologists have spent many years documenting the fact that group decisions are amongst the worst decisions ever made. Effectively endorsing the view that committees are groups of people who keep minutes but waste hours! The key reason for this appears to…