Once again, we read the sad headlines about investors misled by an investment manager who had a “sure thing” investment strategy that led to a devastating outcome.
The size and scope of the recent debacle appear unparalleled, raising painful questions: Why do these things happen with some regularity—and to people we consider sophisticated? Why don’t we learn from past mistakes, especially since so many of them have been widely publicized?
Robert Cialdini, a professor of psychology at Arizona State University, was quoted in a recent Wall Street Journal article (subscription required) pointing to three elements that contribute to bad investment decisions made by smart people:
1. The opportunity has an air of mystery about it, and only someone who’s smarter than you are can figure it out.