Investors are irrational, in predictable ways that make them losers in Wall Street's casino © Hemera Technologies/Jupiterimages

Extra6/8/2010 1:00 PM ET

American investors: Predictably stupid

Not only are our brains irrational, but our behavior is easily predicted by wolves on Wall Street, who are only too eager to lead us sheep to the slaughterhouse.

By Paul B. Farrell, MarketWatch

Yes, I am mad as hell again. Wall Street's soulless, immoral, greedy bankers really believe that the vast majority of America's 95 million investors are not only predictably irrational but stupid, words Forbes use to sum up the views of a JPMorgan Chase investment officer a while back.

MSN Money
Worse, Main Street investors are losers for continuing to trust Wall Street after it lost 20% of our retirement money in the last decade.

Now, worst of all, Wall Street's traders have profiled Main Street investors in their algorithms: Yes, investors are predictably stupid losers, what con artists call a "mark," a dumb gambler who can be easily coaxed out of his money.

Why so blunt? Listen: Recently I explained why the Wall Street banks must kill financial reform to preserve their multibillion dollar bonus pool. One reader commented: "I worked at the Bear Stearns . . . every word written here is true. Fact is, bankers regard themselves as wolves and the public as prey, and speak about it openly among themselves." Then he added a sucker punch: "What is extraordinary to me is how willingly the sheep submit to this."

Yes, folks, Wall Street is certain that America's 95 million investors are clueless sheep headed for the slaughterhouse.

But wait, that's not news. Twenty years ago, former bond trader Michael Lewis' "Liar's Poker" described the insanity of our addiction to gambling in a few memorable lines: "Men on the trading floor may not have been to school but they have Ph.D.s in man's ignorance." They know that "in any market, as in any poker game, there is a fool. The astute investor Warren Buffett is fond of saying that any player unaware of the fool in the market probably is the fool in the market."

And, as we now know, in the stock market, the vast majority of America's 95 million investors are fools -- predictably stupid losers.

Lewis says traders instinctively know that the more people chasing a trend "the easier it was for them to delude themselves that what they were doing must be smart. The first thing you learn on the trading floor is that when large numbers of people are after the same commodity, be it a stock, a bond or a job, the commodity quickly becomes overvalued," making it easy for traders to generate hundred-million-dollar-profit days.

Sorry, but that's exactly how Wall Street sees you: predictably stupid losers. What else could a rational person conclude?

So you ask: What triggered this rant? Simple: A new book, "The Upside of Irrationality: The Unexpected Benefits of Defying Logic at Work and at Home," by Dan Ariely, the brilliant Duke University behavioral economist who earlier wrote the one book whose title alone tells you all you'll ever need to know about behavioral economics. Answer: You are "Predictably Irrational." Period.

I feel sorry for the people who read books on behavioral economics. Why? Because most are written by brilliant academicians and top journalists, not callous, greedy Wall Street traders who'd never divulge their secrets. But that's no excuse. These books are all filled with misleading pop-psychology nonsense based on a simple premise: If you just buy these books and apply their advice, you can change the way you think, become less irrational and be a better investor, even beat Wall Street. Wrong.

Never read another behavioral economics book . . . ever. They're based on the same misleading assumption that you can make your brain less irrational and win at Wall Street's casino. Never happen in a million years. Never.

Wall Street's already programmed your psychological profile into their trading algorithms. They're light-years ahead of you, misleading you into their slaughterhouses and casinos.

Why such a strong warning? Remember, these books were built on the original research of Daniel Kahneman, who won the 2002 Nobel Economics Prize for his work in behavioral economics. Moreover, most of them were published before Wall Street's meltdown a couple years ago. And still Main Street investors lost trillions of retirement money.

Get it? Reading books on behavioral economics not only didn't help, it probably gave you a false sense of security that made you even more vulnerable to Wall Street's con game -- and given its current $400 million lobbying effort to kill financial reforms, you can bet another meltdown is destined to happen again, soon.

Admit it, investors are sheep, fools, predictably stupid losers.

Continued: 'Flaw in the model'

More from MSN Money and MarketWatch

 1 | 2 | next >

Rate this Article

Click on one of the stars below to rate this article from 1 (lowest) to 5 (highest). LowHigh
MarketWatch on MSN Money