Robert Cialdini is one of the most influential social psychologists in the world.
His book, ‚??Influence: The Psychology of Persuasion,‚?Ě has sold over 3 million copies since its publication in 1984. I rank it among the top 20 most influential books I’ve ever read.
Unlike most ‚??Ivory Tower‚?Ě academics who conduct research on college students 18-22 years of age, Cialdini based his work on experiments in the real world.
He spent three “undercover” years applying for and training at used car dealerships, fundraising organizations and telemarketing firms to observe real-life examples of persuasion.
Today, the results of Cialdini‚??s research have been incorporated into almost every sales pitch you ever come across.
So what do Cialdini‚??s insights on Influence have to do with investing?
Well, quite a bit, as it turns out‚?¶
Charlie Munger incorporated many psychological insights from Cialdini‚??s book in a widely cited speech at Harvard back in 1995.
Overcoming your psychological biases is easier said than done.
But understanding that these biases exist is a good first step to improving your investment decision-making.
Cialdini‚??s Six Weapons of Influence as Applied to Investing
If you perceive an item as¬†scarce, you will suddenly want more of it. That‚??s the thinking behind offers available for a “limited time only.‚?Ě
You will see this sense of urgency in the world of investing when an initial public offering (IPO) of stock leads to the offering becoming oversubscribed. For example, say you subscribed to buy 1,000 shares of Snapchat (SNAP) stock in March. In the end, you were allocated only 500 shares.
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