“So why do mutual funds thrive? They take advantage of a mistake we all make: We treat cherry-picked data as typical. To document this mistake, two business-school professors, Jay Koehler and Molly Mercer of Arizona State, studied the way investors respond to mutual-fund advertisements. For instance, if a mutual-fund company advertises a 31% return on one fund, investors get more interested in other funds from the same company. But if the investors are reminded that the data was cherry-picked—i.e., “the 31% return is from one fund of many managed by this company”—then they are able to avoid this mistake. (Just as when you read an impressive bullet on a guy’s résumé, you don’t conclude that he’s always awesome.) Unfortunately, though, mutual funds aren’t inclined to provide helpful warnings like “The returns we’re hyping are anomalies!” Excerpt From: Dan Heath & Chip Heath. “The Myth of the Garage.” Crown Business, 2011-11-01. iBooks. This material may be protected by copyright.
Posted on: Mon, 02 Sep 2013 03:06:07 +0000
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