How bias goes to investors' heads

"Success in investing doesn't correlate with IQ once you're above the level of 25. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing."

Those are the words of Warren Buffet, undoubtedly the world's most over-quoted investment guru, on behavioural finance - the study of the role human psychology plays in making investment decisions.

But although the bulk of behavioural finance studies and commentary comes out of America, a recently-released New Zealand and Australian study shows investors Down Under suffer from the same blind spots, idiosyncrasies and neuroses which lead to irrational investment choices.

The research by Dr Madhu Veeraraghavan - formerly of the University of Auckland and now with Monash University - and three Australian associates shows experts are no less affected by unconscious biases than amateurs, called naive investors in the study.

Among the key findings of the study of 1000 investors, which was sponsored by ANZ and ING, was that experts and amateurs are driven by a more powerful desire not to lose money than to make it.

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