Editorial Review:
Everyone from journalists to market pros are turning to behavioral finance to explain, analyze, and predict market direction. In contrast to old-school assumptions of cool-headed rationality, the new behavioral school embraces hot-blooded human irrationality as a core feature of both individuals and financial markets. The 2002 Nobel Prize in Economics was awarded to scholars of this new scientific approach to irrationality. In Mean Markets and Lizard Brains, Terry Burnham, an economist who has a proven ability to translate complex topics into everyday language, reveals the biological causes of irrationality. The human brain contains ancient structures that exert powerful and often unconscious influences on behavior. This "lizard brain" may have helped our ancestors eat and reproduce, but it wreaks havoc with our finances. Going far beyond cataloguing our financial foibles, Dr. Burnham applies this novel approach to all of today's most important financial topics: the stock market, the economy, real estate, bonds, mortgages, inflation, and savings. This broad and scholarly investigation provides an in-depth look at why manias, panics, and crashes happen, and why people are built to want to buy at irrationally high prices and sell at irrationally low prices. Most importantly, by incorporating the new science of irrationality, readers can position themselves to profit from financial markets that often seem downright mean. Mean Markets and Lizard Brains skillfully identifies the craziness that is part of human nature, helps us see it in ourselves, and then shows us how to profit from a world that doesn't always make sense. TERRY BURNHAM is a leader in the application of biology to economics and finance. He was an economics professor at Harvard for many years, beginning at the Kennedy School and, most recently, at the Harvard Business School. His biological research has taken him to Africa to observe wild chimpanzees and to the laboratory to study the role of testosterone in negotiation. He is coauthor of the international bestseller Mean Genes. Before joining the Harvard faculty, he worked at Goldman Sachs & Co. and was the president and CFO of the successful start-up biotechnology firm, Progenics Pharmaceuticals, whose work in AIDS and cancer treatment has been widely praised. Dr. Burnham has a PhD in business economics from Harvard University, a master's in finance from MIT, an MS in computer science from San Diego State University, and a BS in biophysics from the University of Michigan. He served with distinction as a tank driver in the U.S. Marine Corps. .
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Customer Reviews
Average Customer Rating: 
Recycled history machines, cavemen in faded blue jeans...  2008-02-08
...so goes the line of one of my favorite songs, 'Don't you know' by Jimmy Buffett. As a human evolutionary biologist, I am always tickled when Darwinian evolution is correctly, accurately, and elegantly invoked to address contemporary issues of the human condition. As a forty something man who keeps a close eye on his investments and retirement portfolio, I was delighted to see that Dr. Burnham had written a book that illustrates how the 'lizard brain' is often out of sync with the 'invisible hand'. The writing is witty yet Burnham explains intricate aspects of fiscal management and economics with skill and clarity. More importantly to this biological anthropologist, unlike all too many authors who proport to understand evolutionary biology, Burnham actually delivers. Read this book, share it with your friends and family.
Insight into what swings the markets 2007-10-22
As a lot of what happens in the market world today seems to be based on perception of effects from various events and is caused by our reaction to it, its nice to have a book that looks at that aspect instead of going over charts and formulas. This is a good read on how people's fear and poor decisions can cause them problems.
How people have built in problems with thinking rationally and how to exploit irrationality in markets 2007-05-01
What a cool book! Terry Burnham wants to help his readers understand that while we fancy ourselves users of reason and rational beings we still have blind spots in our thinking and behavior that can get us into a great deal of trouble when making investment decisions. That is, unless we are explicitly aware of these problems and consciously work to train ourselves to avoid them and be continuously on guard against falling into their pit.
Burnham organizes the book into four parts. The first chapter is the introduction and presents the gist of the book. What is a mean market? The fact that markets can defy the accepted bromides about rational markets and wipe out investors surprisingly quickly and without any hint of mercy. The idea of cosmological indifference comes to mind. The author's vivid image of the "Lizard Brain" refers less to any explicit structure in the brain or any claim to specific evolutionary path to brain development.
Instead, Burnham is referring to the fact that we all have a set of tendencies, hard wired ways of perceiving the world, and bred in behavioral tendencies that worked well in keeping our ancestors alive in the ancient world. However, they are as out of place in our technological world as a lizard might be at the Met. For example, our brains are very good in seeing patterns. The problem is we often see patterns where none exist. On the other hand, we are terrible at perceiving frequencies. However, with training and discipline we can learn to deal with both of these natural tendencies. Without being aware of these potential problems, we too often get ourselves in trouble.
The first part weighs the traditional Efficient Market Hypothesis (EMH) of rational markets against the oceans of evidence that people do behave irrationally. Here is where I differ slightly with Burnham. My understanding of EMH does not require that each individual act rationally or that any given price at any instant in time be the "right" price. Instead, it indicates that in the aggregate that most irrationality cancels each other out and resources get allocated surprisingly efficiently. As for prices, the notion is not that the price is free from being too high or too low, but that there is a "right" price at all that will be in the area of most of the trading with some of it too high and some too low.
However, the EMH doesn't help the investor account for irrationality or how to avoid its dangers in one's own behavior or capitalize on its existence in others. And this is where the book's strengths are to be found.
The second part takes us through a survey of evidence of irrationality in the American markets and the limits of growth that are so often ignored in pricing equities. The author also takes us through the uses and perceptions of money, barter, inflation, and deflation. All interesting and useful information.
In part three we get Burnham's actual views on how to pull all this together in viewing Bonds, Stocks, and Real Estate for investments at the time of this book (2005). Burnham is an economist and discounts the optimism of many people who tout these products. I think he makes a great deal of sense. However, it is up to you to make your own decisions.
Part four provides two chapters full of principles for us to apply in making our own investment decisions. The first chapter gives "timeless advice". That is, those principles that are applicable in any type of market at any time. The second chapter offers "timely advice". That is, advice that is market condition specific. Burnham gives us principles to apply in rising or declining markets and how to know when to use them.
The issue is whether we have the discipline to apply them or will we surrender to the emotional pull of the lizard brain and find ourselves in trouble.
Burnham makes this subject quite lively, is able to put some nice color to it with some good anecdotes, illustrative stories, and some actually funny jokes.
Recommended.
Not a Comprehensive Look at the Topic  2007-03-20
I purchased this book with the assumption that it would be a more in-depth treatise on investor psychology/behavioral economics. There was some of this sprinkled throughout the book, but overall it was not comprehensive. This does not, per se, make it a bad read. In fact, it was an easy read despite the annoying movie references throughout the book. But if you are looking for a more thorough look at this topic, your best bet is to look at the offerings of other authors.
Very good read, more intellectual rigor perhaps 2006-10-04
I thoroughly enjoyed the book. Almost 2 years before the fact, it was pretty predictive of what might happen to the housing bubble. Actually I am thinking about making career moves in the direction of Behavioral Finance/Economics so was happy to see a 'popular" book in this area. But this is also the problem, I am looking for more scholarly accounts too!
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