This Scientist Studied 38,000 People and Says Your Money Habits Are Genetic

**Hampton** (0:00)
You've probably spent a lot of time thinking about how to make money, because most founders have. But something you've probably thought a lot less about is the same traits that make you a great founder are likely the exact traits that will make you a bad investor. The conviction, the concentrated bets, the bias to action, the optimism, all of it flips when the wire actually hits your account. My guest today is Henrik Cronqvist. He's a behavioral finance professor who spent 25 years running the exact science on why smart, successful people make irrational decisions with their money. He did his PhD at the University of Chicago under Richard Thaler, the Nobel laureate who basically invented the concept of nudges and behavioral economics. He published research that has been cited over 7,000 times and covered everywhere from the Wall Street Journal to Harvard Business Review. One of his most striking studies used data from 38,000 twins to figure out how much of your investment behavior is actually hardwired into your DNA.
And the answer surprises a lot of people, including him.
The episode isn't about how to make money. It's about what the science says about what you're probably going to do with it and why that's going to be bad and what you can actually do to protect yourself from your own brain. This is Moneywise. Let's get into it. Welcome back to another episode of Moneywise. Today we have a really special guest, Henrik Cronqvist, who joins us as a behavioral finance expert, which I'm going to have you, Henrik, actually explain what that is. If you could actually jump off here right into the episode and give me kind of your one sentence breakdown that tells us what you do.

**Henrik Cronqvist** (1:45)
Sure. Now, first of all, it's really a pleasure to be on today. And I'm a big fan of the podcast, it's really an honor to be on and chat with you today and the audience as well about behavioral finance and founders and all of those kinds of topics. So what is behavioral finance? Well, at the end of the day, it sounds very fancy, but at the end of the day, it is that we take a couple of different ingredients, we take a little bit of finance and economics, and we mix that with a little bit of psychology, and then we get behavioral finance. And it really started back in the 80s as a discipline within finance research. And then a bunch of people have popularized it. So many people have read books like Nudge or Thinking Fast and Slow.
And so that's what behavioral finance is about.

**Hampton** (2:34)
Okay, so tell me why, let's say someone just sold their company for $20 million. Why should that person care about behavioral finance?

**Henrik Cronqvist** (2:44)
I think they should very much care. What makes many people successful entrepreneurs and founders and startup people may be exactly the type of characteristics that make them more challenged as an investor in the stock market. So what am I talking about? Well, if you think about conviction, that's not... We want founders to have strong conviction. We want them to be optimistic. We want them to take a concentrated bet.
And many of those things actually flips when it comes to investment. And just to give one example on concentrated bets, we have one of the biases that we have identified in behavioral finances, what we call the home bias. People tend to hold a lot more stocks in their home market than in other international markets. That might be okay if you're in America. But if you're in my home country of Sweden, a very small country that is maybe less than 1% of the world economy, then you can end up with a very concentrated portfolio. And in finance and in the stock market, we should diversify and we should be in many different stocks and securities. So that may be something that is counterintuitive to many founders.

**Hampton** (4:00)
Yeah. And before we jump into the research, when you think of someone messing up with money, because I feel like behavioral finance, you've studied so much about what people do well with their money, what people do, of course, poorly with their money. What made you start studying this? How did you end up in a career and research about this specific topic?

**Henrik Cronqvist** (4:21)
Yeah, it's a long story. The short version of it is that I came to America in 1999 to do my PhD at University of Chicago. And I got really attracted to this field of behavioral finance. It actually started, not to bore anyone, but I started with when I was writing my dissertation, I went back home to my home country of Sweden. And I still remember, I was coming out of the subway, coming up to the ground floor. And this is like around year 2000 And I realized that it looked like someone had carpet bombed the entire city of Stockholm with advertisement for different mutual funds.