@Aurelija's

Behavioral finance has always been one of my interest areas, so when I saw D. Kahneman's new book at Amazon - "Thinking, Fast and Slow" - I had no doubt I had to get and read it asap.

In his new book Kahneman, a father of behavioral finance, explains the concepts of human thinking and behavioral biases in a new light - with examples and scientific evidence. Even to those who have heard/read about behavioral finance before the book offers many "aha" moments. It reveals flaws in our thinking and behavior, the awareness of which could make our lives much easier.

Kahneman distinguishes 2 systems of human thinking - calls it System 1 and System 2. System 1 is our intuitive/quick thinking, and System 2 is the lazy one - it requires more effort and it therefore requires power of will. System 1 is where the major human behavioural flaws are made - the system tries to build coherence, finds explanations to fit our believes, and often oversimplifies.

The law asserts that if there are several ways of achieving the same goal, people will eventually gravitate to the least demanding course of action. In the economy of action, effort is a cost, and the acquisition of skill is driven by the balance of benefits and costs. Laziness is built deep into our nature.

Kahneman discusses many behavioral biases one by one. Key focus on "status quo" and "loss aversion", which is inherent in our nature:

Loss aversion is a powerful conservative force that favors minimal changes from
the status quo in the lives of both institutions and individuals. This
conservatism helps keep us stable in our neighborhood, our marriage, and
our job; it is the gravitational force that holds our life together near the
reference point.

I loved the author's examples with the loss aversion, especially in the context of trading. According to Kahneman, good traders are those who do not suffer from the "endownment effect" (which means not willing to give up something you already own). This is proved by experiments. Good traders do not build emotional links to the financial assets owned and do not stick to their views no matter what. Flexibility is key, and unfortunately the human nature is not endowed with that - this is something one needs to learn consciously.

All in all, lots of relevant issues and good advice from Kahneman in just 1 book. It is definitely not a 1-time read, and the book can find a place in a shelf for many years - as a manual of human behavior.