Both as an undergraduate economics student, and then as a fledgling investment advisor, I was weaned on the concept of the rational actor, who “always chooses to perform the action with the optimal expected outcome for itself from among all feasible actions.” It didn’t take me long in our profession to realize that, like the unicorn and the gryphon, the rational actor was a myth.

Yet, like so much academic theory in cognitive science, the myth refused to die – until, 50 years ago just about now, the Israeli psychologists Daniel Kahneman and the late Amos Tversky completed their seminal paper “Belief in the Law of Small Numbers.” Its essential finding: that people’s “intuitive expectations are governed by a consistent misperception of the world.” Their work in bringing to light those consistent misperceptions eventually led to Kahneman (Tversky had since passed away) receiving the Nobel Prize – not in psychology but in economics.

The story of Tversky and Kahneman’s uniquely brilliant partnership is told with his typical brio by Michael Lewis in his 2017 best-seller The Undoing Project. Indeed, Lewis finds, that story is not so much a chronicle of partnership as it is of something more closely analogous to marriage: three days before Tversky’s terminal cancer diagnosis, the men stopped speaking.

I can think of no more appropriate a serious read for financial advisors during these transcendently strange days – or any time, really – than The Undoing Project.

Why do investors think that when equities are declining in price, their value is decreasing and their risk rising, when all of history and simple math demonstrate the opposite? Why does an investor who’s able to hold on through a 20% decline capitulate when down 30%, despite all reason and experience telling him he’s that much closer to a bottom? Why does someone accumulating equities for retirement ask us if he should stop his contributions, given the current crisis? (What “consistent misperception” prevents him from seeing this as a once-in-a-decade sale on things he desperately needs to own for years and even decades?)

Direct answers to these and many related questions may not specifically be found in Mr. Lewis’s sparkling account. But the realization that fundamental human nature is wired to make these terrible mistakes may strengthen our conviction that our highest-value function is as a Behavioral Investment Counselor.

© 2020 Nick Murray. All rights reserved. Reprinted by permission. During the current crisis, Nick has begun sending his newsletter subscribers memos which they can send to clients over their own signature. Visit for a sample issue of Nick Murray Interactive, and to subscribe.