The Morgan Housel Podcast Fees vs. Fines: The Cost of Admission in Investing
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Mar 28, 2025 Explore the psychology of investing through a captivating lens, comparing psychological studies to market behavior. Discover how B.F. Skinner’s pigeon experiments reveal insights about incentives and addictive patterns in investments. Embrace the volatility of the stock market as part of the game, understanding that fluctuations represent a cost of admission. The discussion highlights the historical ups and downs, particularly in Japan, encouraging a resilient mindset in the face of uncertainty for long-term success.
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Skinner's Pigeon Experiment
- B.F. Skinner's pigeon experiment explored incentive structures, notably the "variable interval reward."
- Pigeons went crazy pecking a lever for food dispensed at random intervals, mirroring human behavior in investing and gambling.
Investing as a Variable Reward
- Investing resembles a variable interval reward, with uncertain timing of returns, unlike a fixed reward system.
- This uncertainty, similar to gambling, can trigger dopamine and irrational behavior in investors.
Volatility as a Fee
- Volatility in the stock market is a fee, not a fine, representing the cost of long-term gains.
- Like Disneyland's admission price, volatility is the price paid for potential future rewards, not a penalty for wrongdoing.