Mean Markets and Lizard Brains: How to Profit from the New Science of Irrationality [Hardcover]

Terry Burnham (Author)

Book Description

Publication Date: February 8, 2005

Everyone from journalists to market pros are turning to behavioral finance to explain, analyze, and predict market direction. In contrast to old-school assumptions of cool-headed rationality, the new behavioral school embraces hot-blooded human irrationality as a core feature of both individuals and financial markets. The 2002 Nobel Prize in Economics was awarded to scholars of this new scientific approach to irrationality. In Mean Markets and Lizard Brains, Terry Burnham, an economist who has a proven ability to translate complex topics into everyday language, reveals the biological causes of irrationality. The human brain contains ancient structures that exert powerful and often unconscious influences on behavior. This "lizard brain" may have helped our ancestors eat and reproduce, but it wreaks havoc with our finances. Going far beyond cataloguing our financial foibles, Dr. Burnham applies this novel approach to all of today's most important financial topics: the stock market, the economy, real estate, bonds, mortgages, inflation, and savings. This broad and scholarly investigation provides an in-depth look at why manias, panics, and crashes happen, and why people are built to want to buy at irrationally high prices and sell at irrationally low prices. Most importantly, by incorporating the new science of irrationality, readers can position themselves to profit from financial markets that often seem downright mean. Mean Markets and Lizard Brains skillfully identifies the craziness that is part of human nature, helps us see it in ourselves, and then shows us how to profit from a world that doesn't always make sense.

Editorial Reviews

From the Inside Flap

In Mean Markets and Lizard Brains, Terry Burnham—an economist who has a proven ability to translate complex topics into everyday language—reveals the biological causes of irrationality and its connection to the way we invest. The human brain contains ancient structures that exert powerful and often unconscious influences on behavior. This "lizard brain" may have helped our ancestors eat and reproduce, but it wreaks havoc on our finances. Going far beyond cataloguing our financial foibles, Dr. Burnham applies this novel approach to all of today's most important financial topics—the stock market, the economy, real estate, bonds, mortgages, inflation, and savings. This broad and scholarly investigation provides an in-depth look at why manias, panics, and crashes occur and how you can profit from this knowledge.

The investigation into the economic implications of the lizard brain began in the late 1970s—and led to a 2002 Nobel Prize in Economics being awarded to the scholars of this new approach—but only recently have individual investors and market professionals begun to exploit these findings to explain, analyze, and predict market direction. In contrast to old-school assumptions of cool-headed rationality, the new school embraces hot-blooded human irrationality as a core feature of both individuals and financial markets.

Mean Markets and Lizard Brains converts cutting-edge intellectual developments into practical investment steps. Filled with in-depth insights and real-world advice, this guide:

• Provides a timeless blueprint for effective and low-stress investing through a thorough examination and explanation of the lizard brain.
• Summarizes the key findings of the science of irrationality and reveals the biological forces that cause even the smartest of people to make systematic mistakes.
• Sets the macroeconomic stage for choosing investments, with discussions of the economy, inflation, and the value of the U.S. dollar.
• Evaluates investments based on understanding how the lizard brain operates in today's global macroeconomic landscape.

By understanding and taming the lizard brain, you can position yourself to prosper in financial markets that often seem downright mean. Mean Markets and Lizard Brains skillfully identifies the craziness that is part of human nature, helps us see it in ourselves, and then shows us how to profit from a world that doesn't always make sense.

From the Back Cover

Praise for Mean Markets and Lizard Brains

"A thought-provoking read that gives insight to human behavior and your investment strategies."
—Isiah Thomas, President, Basketball Operations, New York Knicks

"Mean Markets and Lizard Brains translates neuroeconomics and cutting-edge theories of human behavior into practical advice. While the causes of costly decisions often lie outside our conscious awareness, they need not remain a mystery. The writing is provocative and insightful."
—Professor Vernon L. Smith, Nobel Prize winner in Economics

"A lively and entertaining account of the emerging field of neuroeconomics, where Fear and Greed meet Nature red in tooth and claw, with some surprisingly practical implications for individual investors, portfolio managers, and other market prognosticators."
—Andrew W. Lo, Harris & Harris Group Professor, MIT Sloan School of Management, and director of MIT's Laboratory for Financial Engineering

"Mean Markets and Lizard Brains is a whole new way of approaching the world of finance. It explains why we should question the financial advice of our friends, colleagues, and advisors. For years, my wife and I have relied upon Terry's financial advice. We are glad that this excellent book makes his discoveries available to everyone."
—Mark-Paul Gosselaar, actor, NYPD Blue

"Should be required reading for anyone trying to understand financial markets. It is the first book positioned at the intersection of finance, biology, and psychology —but it does not require knowledge of any of these fields. The author, one of the pioneers in the field of economics grounded in biology, combines accessibility with rigor. Reading it (along with everything Burnham writes) is a delight."
—Nassim Nicholas Taleb, author of Fooled by Randomness

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Product Details

• Hardcover: 320 pages
• Publisher: Wiley; 1 edition (February 8, 2005)
• Language: English
• ISBN-10: 0471602450
• ISBN-13: 978-0471602453
• Product Dimensions: 9.5 x 6.3 x 1.1 inches
• Shipping Weight: 1.1 pounds (View shipping rates and policies)
• Average Customer Review: 4.1 out of 5 stars  See all reviews (39 customer reviews)
• Amazon Best Sellers Rank: #1,288,535 in Books (See Top 100 in Books)

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Customer Reviews

Most Helpful Customer Reviews

48 of 51 people found the following review helpful:

3.0 out of 5 stars Misleading- A traditional investment book w/a neat cover, June 26, 2005

By 

Steve Sun - See all my reviews

This review is from: Mean Markets and Lizard Brains: How to Profit from the New Science of Irrationality (Hardcover)

The decision to purchase Mean Markets was not pre-meditated. I was wandering around the bookstore and happened to see Mean Markets displayed fairly prominently at Borders. I was intrigued by the title and the lizard on the back. At the very least, the book looked like an unconventional investment book. Oddly, what made me purchase the book was seeing a very positive blurb from Nassim Nicholas Taleb on the back. I consider Nassim's latest book "Fooled by Randomness" one of the best investment books over the last few years. In the blurb, Taleb actually says, "Should be required reading for anyone trying to understand financial markets...." I took the blurb seriously since Taleb doesn't seem like the type to give blurbs to books he doesn't like. In Fooled by Randomness, he specifically cited occasions he gave bad reviews or didn't allow blurbs. I should've taken some caution in seeing Isiah Thomas and Mark-Paul Gosselaar (former star of Saved by the Bell) also providing blurbs.

Among other things, the books intent is to serve as a primer to behavioral finance and teach how to invest according to the new findings. While the book is very readable, it's not particularly innovative or useful for a non-beginning investor.

The first of the three sections, "The New Science of Irrationality" is by far the most interesting. Mr. Burnham shows us that there is effective two parts to our brain: the pre-frontal cortex and the rest, which is the lizard brain. The pre-frontal cortex is responsible for analysis. The lizard brain controls our instincts and impulses. Our goal in investing should be to rely on the pre-frontal cortex and limit our lizard brains. In certain environments, such as hunting for food or playing football, our impulses and lizard brains are perfectly fine for dictating decisions. Conversely, the markets are an area that our minds are not suited for. For example, humans are notoriously bad at calculating conditional probabilities.

The second section is (oddly) a primer on issues facing the US and global economy. Mr. Burnham provides the conventional bull and bear case for the global economy. The chapter tackles many of the major issues including the twin deficits, productivity, interest rates and inflation. For the reader without any knowledge of these issues, the section is very useful. That said any reader who reads the Economist Magazine or pays any attention to macro-economic issues will gain little. There's nothing new the chapter introduces. Mr. Burnham barely discusses how the new science of irrationality allows us to better analyze the global economy.

The third section, very similar to the second, is a primer on the major assets classes: stocks, bonds and real estate. The only difference is that he's bearish on all three. Once again, he provides a very clear explanation on why the asset classes won't do as well. However, he again deviates little from the standard investment book or for that matter magazine article on the markets. There's no new method irrational analysis.

From a different perspective, Nassim Nicholas Taleb statement that this is a "must read" isn't completely inaccurate. While there are certain topics not covered by traditional investment books, the bulk of the book really is just an overview of the issues facing the economy and the markets. For the reader who's not at all familiar with these issues, this book will get him caught up.

However, the book really isn't about lizard brains or the new science of irrationality. I get the impression that Mr. Burnham simply wanted to write a traditional book. My guess is that his publishers needed some type of hook. They then inserted the lizard brain stuff. At the end of the day it's a traditional book and doesn't provide much further insight than any other book.

10 of 10 people found the following review helpful:

5.0 out of 5 stars Fun and interesting read!, January 9, 2006

By 

Rolf Dobelli "getAbstract" (Switzerland) - See all my reviews
(HALL OF FAME REVIEWER)    (TOP 500 REVIEWER)    (REAL NAME)   

This review is from: Mean Markets and Lizard Brains: How to Profit from the New Science of Irrationality (Hardcover)

Conventional wisdom about investing suggests that people are basically rational, markets are basically efficient, and nobody can earn a reward without some risk. One corollary of this conventional wisdom is that individual investors ought to own stocks. Individual investors have been acting conventionally wise - but that may be exactly the wrong thing to do. Author Terry Burnham draws on the relatively new science of behavioral economics - informed by insights into human reasoning that have been discovered by cognitive researchers - and offers investment advice dramatically at odds with conventional wisdom. Burnham, a former Harvard professor with ample experience in finance, puts his thoughts in pop language, drawing not on market studies but on movies and other references to current culture, to make many of his most salient points. What he loses in `gravitas', he gains in entertainment value. We find that this investment book manages to be fun to read, while providing the grain of salt readers should take to temper more conventional economic advice.

25 of 30 people found the following review helpful:

5.0 out of 5 stars If You can Afford Just One Book, Buy This One, August 8, 2004

By 

Greencho "Go Habs Go" (brookline, ma USA) - See all my reviews

This review is from: Mean Markets and Lizard Brains: How to Profit from the New Science of Irrationality (Hardcover)

From "Essays on Genetic Evolution and Economics" to the widely acclaimed "Mean Genes", Terry Burnham has been a leader in applying learnings from sociobiology broadly. His gift is making complicated academic research accessible to all. His novel message is that our underlying human behavior, honed through thousands of years of genetic evolution, actually gets in the way of our logical thought processes when it comes to playing the stock market, buying a house, or trying to save up for our kids' college education. Nowhere are his great insights more valuable than in analyzing the problems we face when making these personal investment decisions, as he does in "Mean Markets and Lizard Brains : How to Profit from the Science of Irrationality".

Professor Burnham weaves insightful personal anecdotes from his vast array of experiences (i.e., as an academic, entrepreneur, investment banker, day-trader, biologist, and United States Marine), and combines them with sound analytical economic thinking (i.e., as a PhD economist from Harvard with up-to-date knowledge of the latest thinking on irrationality). The result is a detailed description of the basis for our poor instincts in financial decision-making, as well as a prescription for improving our performance in this context. Everyone wants to make money by investing wisely, and yet few of us are able to rise above our "Lizard Brain" tendencies. This book goes beyond describing our shortcomings; it teaches us how to think for ourselves in over-riding those "Lizard Brain" inclinations.

I once described "Mean Genes" as the best book I ever read. "Mean Markets and Lizard Brains" challenges that bold assertion. By simplifying a complex topic (i.e., managing your money) with new insights drawn from disparate learnings, Terry Burnham has written a most unusual kind of "how-to" book -- one that does not promise vast riches with little or no effort, but rather vast insight coupled with always practical and realistic advice. If your are looking to learn as you rebalance your portfolio, read this book.