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Oct
30

Using a ‘foreign language shield’ to improve investment decision making

From: Top1000Funds.com

Introducing a “foreign language shield” into a decision-making process is a proven way of making better decisions, according to Cass Sunstein, the Robert Walmsey University Professor at Harvard Law School.

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“If you’re an adviser, get the cost/benefit figures, the risk/return figures, the algorithms, up and running. It’s a great safeguard,” he said.

The term “foreign language shield” comes from the behavioural finance finding that speaking a foreign language has been shown to turn off the part of the brain that makes quick, intuitive and generally error-prone decisions.

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The demand for rigorous cost/benefit analysis is “in President Obama’s 2011 Executive Order, which says you have to quantify everything and make sure the benefits justify the cost”.

“I found this was a fantastic safeguard – sometimes resisted, and not always in the regulatory areas I imagine that you work with, honoured – but extremely helpful,” he said.

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Sunstein said OIRA had veto power, subject to the President’s override.

“So if it says no…that’s the end of it, really, unless the President comes in,” Sunstein said.

“And he’s a pretty busy guy.”

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