Practical analysis for investment professionals
01 December 2016

A Behavioral Bias Cure?

My behavioral finance passion extends not just to categorizing new biases, which is rather humdrum, but in searching for and documenting actual tools to overcome them. Enter a globally recognized neuroscientist, Ulrich Kirk of the University of Southern Denmark. With his fellow researchers, Kirk has tested people’s ability to master behavioral biases and has found something remarkable: Meditation is a way to conquer biases.

Curious about meditation? After almost four years of diligent research, authoring, and the building of a learning platform, our Meditation Guide for Investment Professionals is now live! Behavioral biases, including the research done by Kirk, feature in the Guide. We hope you will explore it further.

What follows is my interview with Kirk.

Jason Voss, CFA: Is it impossible to overcome the biases identified by researchers of behavioral finance/economics?

Ulrich Kirk: What seems to be apparent is that it is very difficult to overcome one’s susceptibility to the decision-making biases identified by researchers such as Amos Tversky and Daniel Kahneman in the domain of behavioral economics. Of course, a number of nudging behaviors have been employed to overcome some of these biases, and nudging is simply a rule that can be carried out of habit.

What is the method you have researched to master biases?

We used mindfulness training as a way to cultivate intrinsic value. Mindfulness training consists of training the body and the mind to increase internal awareness and focus. Body awareness is a process governed by the brain through a mechanism called interoception localized primarily in the insula cortex.

Why do you believe meditators are better able to triumph over their behavioral biases?

The importance of the insula cortex in mindfulness has been shown in our research. We have also discovered how the insula cortex can be used to guide decision making to avoid behavioral biases. Specifically, the increased bodily awareness that comes with mindfulness creates increased degrees of freedom between stimulus and response. This, in turn, leads to a tendency toward more cooperative decision making.

What have the results of your research shown?

With a neuro-imaging technology called fMRI we have shown that mindfulness has a greater effect on brain structures and behavioral responses through an eight-week training intervention when compared to an active control intervention. In our recently published paper, we explained how one’s mindfulness leads to more rational economic decisions in social exchanges. Also, mindfulness training enables people to decrease their negative emotional responses during economic exchanges and to cultivate an inclination to make less biased and more rational decisions.

Since we are in the early stages of this kind of research, do you think it will be possible for people to make use of the insights gained and improve on the results demonstrated so far?

Absolutely, I believe that this kind of research will help empower people to see the benefits of mindfulness and how it impacts the domain of decision making — that people will practice it, not only for the pursuit of stress reduction for which it was originally developed, but also for its direct benefits in terms of improving the decision-making process.

What are the future plans for your research?

I would like to continue this line of research to show the salutary effects of mindfulness and to make it more relevant to people.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/fandijki

About the Author(s)
Jason Voss, CFA

Jason Voss, CFA, tirelessly focuses on improving the ability of investors to better serve end clients. He is the author of the Foreword Reviews Business Book of the Year Finalist, The Intuitive Investor and the CEO of Active Investment Management (AIM) Consulting. Voss also sub-contracts for the well known firm, Focus Consulting Group. Previously, he was a portfolio manager at Davis Selected Advisers, L.P., where he co-managed the Davis Appreciation and Income Fund to noteworthy returns. Voss holds a BA in economics and an MBA in finance and accounting from the University of Colorado.

Ethics Statement

My statement of ethics is very simple, really: I treat others as I would like to be treated. In my opinion, all systems of ethics distill to this simple statement. If you believe I have deviated from this standard, I would love to hear from you: [email protected]

6 thoughts on “A Behavioral Bias Cure?”

  1. Sinra says:

    Nice article

  2. Kai Willy says:

    Thank you for the great sharing

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