MR. ROMAN: Okay. So we are going to sort of talk about how we think of the world. There is sort of two school; right? There is asset pricing, and asset pricing is important to us because that’s how we think about bonds and what’s cheap, what’s expensive, and then we have behavioral factors, and one of the question we have debated often, is how do we reconcile both of them, the behavioral school and the asset pricing school, and how can the two work together in terms of finding a way to explain what we see on there, and I always have this example about behavioral that momentum to me is a behavioral factor.
MR. THALER: Well, you know, so Gene Fama, who of course is the father of the efficient market hypothesis literally, his line is that "We agree about all of the facts, and we disagree about the interpretation," and I think that's mostly right, because if you look at the Fama-French research, they kept adding factors.
MR. ROMAN: Yeah, because it wasn't quite working.
MR. THALER: And it was -- yeah, or it was -- it could be made better – momentum Gene has never liked because you can't possibly call that a risk factor. So he’s refused to put that in there.
MR. ROMAN: It worked for 120 years; right?
MR. THALER: Yeah.
MR. ROMAN: Dan, we have a bias board at the IC, so describe it and, yeah.
MR. IVASCYN: Well, it’s probably the most complicated chart in the world, and I think that was part of the point. It’s in very fine print, and there it is up on the screen.
It’s really a reminder to everyone that’s walking into the room where we make investment decisions that there are a lot of issues to think about in the decision making process, and the goal isn’t to go through every one. It’s really to remind us all that these issues exist and that we require good structures to help combat these biases.
And the good news is it’s not without hope.
There is a positive angle here, and that is that given that so many members of the investment community tend to succumb to some of these inefficiencies in decision making, in theory there is hope for investment platforms that do our best to help control the biases, create good structures and make as a rationale set of decisions as possible. So that’s really what this is set out to accomplish, and hopefully it’s helping in a small, small way.