The Hidden Forces Behind Every Investment Decision

**Julia Dhar** (0:03)
We want something about the story we are telling ourselves, or the analysts, or the market are telling us about it to be true. We want it to be true, and that will guide our view, our outlook on the company over the long term. Sometimes that story will overwhelm what we see or observe in the data.
So that the number one in life, feelings and facts are both very important. But a feeling is not a fact.

**Rachel Warren** (0:42)
That was Harvard-trained behavioral scientist Julia Dahr, author of How Change Really Works. I'm Motley Fool analyst, Rachel Warren.
Julia joined me to dig into what decades of behavioral research can teach us about picking better stocks, why the stories we tell ourselves about companies can be more dangerous than bad data, and how to read a leadership team's body language from the outside. We hope you enjoy.
I'm Motley Fool analyst, Rachel Warren, and today I'm excited to welcome Julia Dahr to the show. Julia is a Harvard-trained behavioral scientist and managing director at Boston Consulting Group, where she founded and leads the group's Behavioral Science Lab. She has spent more than a decade applying experimental behavioral science drawing from psychology, economics, and neuroscience to large-scale organizational change. She's advising CEOs and leadership teams across a wide range of industries and countries. Her TED Talks on productive disagreement and constructive conversations have been viewed more than 8.5 million times on the web. She's a Forbes columnist who's written for the Financial Times and Harvard Business Review. She's also co-author of the new book, How Change Really Works, arguing that the most important component to change that sticks is behavioral science. Julia, welcome to the show.

**Julia Dhar** (1:56)
Thank you for having me, Rachel.

**Rachel Warren** (1:59)
So excited to talk with you today.
And one of the things that's so, I think, fascinating about the space you work in, is obviously applicable to so many different areas of life, but particularly as well to the world of investing, right? And many investors look for an edge in data, but I don't think that we often look for it in human behavior. You've worked for over a decade at the intersection of neuroscience and economics. So maybe just to start off today, but what is behavioral bias and how and why is behavioral science maybe a more reliable indicator of a company's future than just traditional metrics?

**Julia Dhar** (2:34)
So behavioral science focuses on basically, why do people do what they do, and what are effective strategies and tactics for changing behavior in predictable directions. That could be my own behavior. How do I adopt new habits? It could be the behavior of a group, for example. How do we get consistently better quality decisions, for example, from an investment team or from a fund manager? It could be all the way at a whole of society level, how do we get better cooperation in our communities and that kind of thing. What are the reasons why this combined body of psychology, economics, neuroscience, marketing is so important is human beings sometimes find it difficult to do all of the things that we hoped to do, that all the things that would make us the best version of ourselves. We find it hard to follow through on the things that we committed to do or that we want to do.
The other reason, especially for economists, that this whole body of research is so interesting, is so important, is that for a long time, we assumed, that is economists assumed, that human beings were rational, utility maximizing. You would say we're able to take in all of the information that was presented to us, and make a really good quality decision as a result. That's the whole basis of rational market economics.
That turns out not to be true, and is now very well established, not to be a comprehensive explanation of human behavior. The thing that I love is an awful lot of what we talk about as behavioral biases actually reveal really delightful things about human beings. They show that we are much more generous, patient, kinder, altruistic than rationality would expect. Of course, it also reveals that sometimes we are more impulsive, less deliberate, more self-focused than would also be ideal for us. And so the whole mission of people like myself trying to bring behavioral science into the real world is actually to make it useful for people, to say, you have a set of goals and you have a set of visions for your life, you have a set of expectations for your team. How do we make it more predictable, more likely that those can be a reality?