New training to help investors cut their losses

Investors could soon train their brains to let go of bad investments and cut their losses, with a new program developed by Monash University researchers aiming to teach people how to make better financial decisions.

The findings, led by Dr Kristian Rotaru from Monash Business School, start with overcoming the natural unwillingness to walk away without making a profit.

Rotaru said the theory applies to any market where assets can appreciate or depreciate, including cars and property, and it was tested on individuals investing both their own capital and the capital of others.

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“Once you really want to help someone, you become a more ‘procedurally rational’ decision maker – with a tendency to follow a specific strategy that could be potentially explained to the client,” he said.

“People may not find it as easy to convince their client to hold on to a losing asset for too long in the hope of market reversal.”

Rotaru said the next step was to train people to become better decision-makers, especially those investing on behalf of other people.

 




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