The Economics Of Superstition

August 31, 2014 in Daily Bulletin

The Economist took a look at how superstitions affect investment returns:

  • The Chinese word for “eight” is similar to the word for “prosperity”, and the word for “four” is similar to the word for “death”. The superstitious favour the former, and avoid the latter number.
  • Local investors in Taiwan are 50% more likely to pick a trade ending in 8 than in 4.
  • The most superstitious had returns that were 0.03% lower than the least superstitious – this coincidentally comes out to an annual loss of 8.8%.
  • There are other superstitions and even cognitive biases that traders fall to, such as the preference for round numbers.
  • Algorithmic traders can take advantage of such predictable behaviours to extract profits.
  • Evidence indicates that overtime, as traders get more experienced, they lose their superstitions.

Read the rest of the article to find out more details here.

Source: The Economist