One insight from the burgeoning field of behavioural finance might surprise you: investment committees should take their decisions by secret ballot.
The reason is that research shows that dissent can be a powerful invigorator for new ideas. But conventional settings discourage dissent, and instead encourage groupthink. That makes it too easy for investment firms to go along with prevailing trends that eventually go wrong for them. And it makes it much harder to make the kind of bold contrarian calls that make the most money.
Beyond that, Jason Zweig, who last year published Your Money And Your Brain, a book on neuro-finance, said there was evidence that dissent was physically painful. “It’s not just psychologically painfully. The discomfort when we dissent comes from the same part of the brain as extreme pain or fear. If one person in the room is being iconoclast, that isn’t just emotionally important for them, it seems to register in the brain. You need to protect people who are dissenting.”
Beyond the secret ballot on decisions, he suggested that even the earlier stages of decision-making needed to be anonymous. Investment ideas should be passed to the chair, anonymously, and the discussion should start from there. “You get a different discussion if people’s opinions aren’t attached to them.”
Short View columnist John Authers is blogging for FT Alphaville from Vancouver at the annual gathering of the CFA Institute
