The Psychology Behind Why Smart People Make Terrible Decisions | Alex Edmans – EP 823
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Why do intelligent people still make irrational decisions?
What if the information that matters most is Is the information nobody is paying attention to? We tend to react to what's visible. Measurable and impossible to miss. But what if that's exactly where everyone else is looking? My guest today, Alex Edman, argues that flashy, quantitative information can trigger overreaction. while quieter qualitative information can be overlooked by everyone at once. And that raises a much bigger question. What are we missing simply because we're not looking in the right place? Take a listen. So something
which is front page and flashy and more quantitative, it might get a stronger reaction. Something which might lead to underreaction is off the front page. So if something tends to be more qualitative, it might be more hidden. And it's not just hidden to me, it's hidden to you, it's hidden to other investors because naturally we like to plump for something which is flashy and visible. Hey.
It's your friend John, and welcome to Passion Struck. I'm so glad you're here. Whether you're a longtime listener or someone who just discovered the show, thank you for pressing play today. Maybe you've built the life you were supposed to want, but you've quietly wondered why it still doesn't feel like enough. If that's you, you're in the right place. Every week, I sit down with the world's top scientists, researchers, and thinkers to uncover what it actually takes to build an intentional life that matters. Thanks for joining me. Let's get into it. Welcome back to Passion Struck episode 823. In our current series, we've been exploring what it means to be an adaptive human. How we change, how we grow, and how we navigate a world that is constantly changing around us.
Angela Duckworth started us off and showed us how much our environment shape who we become. Marty Seligman reminded us that we still have agency, the ability to believe our actions can make a difference. David Epstein explored how a broad range of experiences can help us adapt while also teaching us when constraints and focus matter. Cole Brower showed us what adaptations look like when there's nowhere to hide, alone at sea, thousands of miles from home, making decisions in real time. And Marissa Franco brought that journey inward. Asking how we adapt without losing ourselves in the process. Today we turn our attention to something that shapes nearly every decision we make. The way we think. Because here's the uncomfortable truth.
Being intelligent doesn't make us rational. And having more information doesn't necessarily make our decisions better. In fact, when millions of people bring the same biases, emotions, stories, and blind spots into the same system, those individual mistakes don't always cancel each other out. Sometimes they compound. That's where my conversation with Professor Alex Enman takes us. Alex is a professor of finance at London Business School and a Fellow of the British Academy. You may remember him from our previous discussion in episode 463. Today we're gonna be talking about his new book, The Madness of Markets, Why Smart Investors Make Crazy Decisions and How to Exploit Them. This conversation picks up the thread of our last one where we talked about misinformation, bias, identity, and the stories we believe, and takes it somewhere much bigger.
What happens when millions of minds collide inside a system that we assume is rational? We talk about why investors overreact to information that's flashy and visible while overlooking information that's quieter and harder to quantify. We explore herd behavior, confirmation bias, anchoring, the danger of following compelling stories, and why even extraordinarily intelligent people can fall victim to the same psychological traps. We also get into something I found particularly fascinating. The things markets struggle to measure. Culture, employee satisfaction, human capital. Reputation and innovation. These things can be enormously important to a company's long term value. Yet they're much harder to plug into a spreadsheet than an earnings number.
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Chapters
3 chaptersSpeakers
1 identifiedMore from Passion Struck with John R. Miles
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The Agency Paradox: Why Real Adaptability Starts Inside the Box | John R. Miles - EP 819
You Don't Need More Freedom. You Need Better Constraints | David Epstein - EP 818
World’s Most Influential Psychologist: The Hidden Force That Drives Human Progress | Dr. Martin Seligman – EP 817