For various reasons I've been reading financial books lately. I am skeptical of my current tome, which (briefly) propounded a theory called Dollar Cost Averaging. It sounded specious, I vaguely remembered that I'd heard it debunked as being irrational, and a quick web search confirmed this (DCA calculator, myth #1, DCA as insurance, which estimates the average cost of DCA). I learned this before having read much, and what little else I read seemed sensible, but now I'm not sure whether to continue reading. Will I be able to recognize other bad advice, and get value from the material, or should I dump it as an unreliable source?

Researching the specific question of DCA, as usual, led me to an hours-long surfing session and a long list of books to read. I was introduced to the (relatively new) field of Behavioral Finance which points out anomalies in the efficient market hypothesis and attempts to explain them through human psychology. Basically, a study of human irrationality applied to financial markets. Since I am fascinated by human irrationality (ie evolutionary psychology) and its relation to gambling (can you say "poker"?), as well as economics, I was engrossed.

As is often the case, having found the appropriate set of experts, I discovered that many of my ideas which seemed original and unique have actually been propounded, modeled, and researched in excruciating detail. Sigh. There sure are a lot of smart people in the world. Anyway, here are some books from tonights journal which sounded particularly interesting. Some of them should be useful for personal investment as well.

• Influence: The Psychology of Persuasion. This book has been highly recommended to me as a guide to the manipulation we encounter in places like sales and advertising.
• Extraordinary Popular Delusions and the Madness of Crowds. Its name keeps popping up. It will make you very suspicious of eyewitness accounts as evidence.
• A Random Walk Down Wall Street: Including a Life-Cycle Guide to Personal Investing. The famous book on the "random walk" theory of markets, which claims that they are so efficient that you cannot consistently outperform them. And neither can your mutual-fund manager, so buy index funds.
• Against The Gods. A history of risk, including its relation to probability theory, insurance, and financial markets.
• Why smart people make big money mistakes-and how to correct them: Lessons from the new science of behavioral economics. Basic intro to behavioral economics.
• Smart Money Decisions: Why You Do What You Do With Money (and how to change for the better). I've actually read this one, it was very interesting. It discusses how human irrationalities affect our financial decisions in areas such as home pricing insurance, managed mutual funds, and so forth. Pretty basic topics, but fascinating if you haven't been exposed to them before.
• Simple Heuristics that Make Us Smart.
• The Winner's Curse. An introduction to behavioral finance by one of the giants of the field (Thaler), derived from his academic papers.
• Quasi-Rational Economics. Also by the author of "The Winner's Curse", but more technically oriented.
• Simple Heuristics That Make Us Smart. From the Author: How can anyone be rational in a world where knowledge is limited, time is pressing, and deep thought is often an unattainable luxury? In our book, "Simple Heuristics That Make Us Smart," we invite readers to embark on a new journey into a land of rationality that differs from the familiar territory of cognitive science and economics. Traditional models of rationality in these fields have tended to view decision-makers as possessing supernatural powers of reason, limitless knowledge, and an eternity in which to make choices. But to understand decisions in the real world, we need a different, more psychologically plausible notion of rationality. This book provides such a view. It is about fast and frugal heuristics-simple rules for making decisions with realistic mental resources. These heuristics can enable both living organisms and artificial systems to make smart choices, judgments, and predictions by employing bounded rationality.

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