Essentia Analytics

The Essentia Reading List

A Short History of Financial Euphoria - Galbraith

Reviews some of the major speculative episodes of the last three centuries - from the 17th century
tulip craze to the calamitous junk-bond follies of the 1980s. Insights provide important lessons on
speculative economics.

Advances in Behavioral Economics - Camerer, Loewenstein & Rabin

One-volume resource for those who want to familiarize themselves with the field of Behavioral
Economics or keep up to date with the latest developments.

An Introduction to Behavioral Economics - Wilkinson

Suitable not only as an introductory text, but also as an entry-point for those desiring an
engaging overview of the field of Behavioural Economics.

Animal Spirits: How Human Psychology Drives the Economy, and Why it Matters for Global
Capitalism - Akelof
Reasserts the necessity of an active government role in economic policymaking by recovering the
idea of animal spirits, a term John Maynard Keynes used to describe the gloom and despondence
that led to the Great Depression and the changing psychology that accompanied recovery. Argues
that managing these animal spirits requires the steady hand of government: simply allowing markets
to work won’t do it.

Antifragile - Taleb
Just as human bones get stronger when subjected to stress and tension, and rumors or riots intensify
when someone tries to repress them, many things in life benefit from stress, disorder, volatility, and
turmoil. What Taleb has identified and calls “antifragile” is that category of things that not only gain
from chaos but need it in order to survive and flourish.

Behavioral Economics and its Applications - Diamond & Vartiainen

In this volume, some of the world’s leading thinkers in behavioral economics and general economic
theory make the case for a much greater use of behavioral ideas in six fields where these ideas have
already proved useful but have not yet been fully incorporated–public economics, development, law
and economics, health, wage determination, and organizational economics.

Behavioral Finance – Forbes

Lays out the fundamentals of Behavioral Finance.

Behavioral Finance: Investors, Corporations & Markets – Baker and Nofsinger

A compilation of chapters by academics and researchers that puts Behavioral Finance into
perspective by detailing the current state of reserach in the area. Offers practical guidance on the
application to real-world situations.

Behavioural Finance: Insights into Irrational Minds and Markets – Montier

An excellent introduction to the concepts and practical applications of Behavioural Finance.
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Behavioral Game Theory: Experiments in Strategic Interaction – Camerer

Uses psychological principles and hundreds of experiments to develop mathematical theories of
reciprocity, limited strategising, and learning, which help predict what real people and companies
do in strategic situations. Unifying a wealth of information from ongoing studies in strategic
behavior, he takes the experimental science of behavioral economics a major step forward.

Behavioral Investing: A Practicioner’s Guide to Applying Behavioural Finance - Montier

A compilation of Montier’s best essays on the application of Behavioral Finance to professional
fund management. An important read for any fund manager.

Beyond Greed and Fear: Understanding Behavioral Finance and the Psychology of
Investing – Shefrin
An entertaining, yet scholarly overview of the subject of Behavioral Finance.

Born Liars: Why We Can’t Live Without Deceit – Leslie

Brings the latest news about deception back from the frontiers of psychology, neuroscience, and
philosophy, and explores the role played by lies - both black and white - in our childhoods, our
careers, and our health, as well as in advertising, politics, sport and war.

Breakdown of Will – Ainslie

Argues that our responses to the threat of our own inconsistency determine the basic fabric of
human culture. Suggests that individuals are more like populations of bargaining agents than like the
hierarchical command structures envisaged by cognitive psychologists.

Choices, Values, and Frames – Kahneman & Tversky

Presents an empirical and theoretical challenge to classical utility theory, offering prospect theory as
an alternative framework. Extensions and applications to diverse economic phenomena and to studies
of consumer behaviour are discussed. Also elaborates on framing effects and other demonstrations
that preferences are constructed in context, and develops new approaches to the standard view of
choice-based utility.

Devil Take the Hindmost: A History of Financial Speculation – Chancellor

A light but informative read focusing on speculation as it developed in the world's leading stock
markets. Starts with the tulip mania in seventeenth-century Holland, then moves to Britain
with accounts of speculative manias such as the South Sea Bubble and the Railway Mania.

Discover Your Inner Economist - Cowen

Offers idiosyncratic strategies for appreciating museum art, for building family trust and cooperation,
for writing a personal ad, for reading classic novels that seem boring on first inspection, for surviving
torture, for properly practicing self-deception and for most effectively giving to beggars in Calcutta.

Economics and Psychology: A Promising New Cross-Disciplinary Field - Frey and Stutzer
Takes a broad view of the interface between these two disciplines, going beyond the usual focus on
Behavioral Economics. The influence of psychology on economics has been responsible for a view
of human behavior that calls into question the assumption of complete rationality (and raises the
possibility of altruistic acts), the acceptance of experiments as a valid method of economic research,
and the idea that utility or well-being can be measured.
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Everything Is Obvious: *Once You Know the Answer - Duncan Watts

The explanations that we give for the outcomes that we observe in life - explanations that seem obvious
once we know the answer - are less useful than they seem. Shows how common sense reasoning and
history conspire to mislead us into thinking that we understand more about the world of human
behavior than we do; and in turn, why attempts to predict, manage, or manipulate social and
economic systems so often go awry.

Exotic Preferences: Behavioral Economics and Human Motivation - Loewenstein

Brings together a selection of papers focusing on "exotic preferences" - the disparate motives that
drive human behavior. In addition to covering the history and methodology of Behavioral Economics,
it also touches on a wide range of fascinating topics such as the motives that drive extreme athletes,
our propensity to want to get unpleasant experiences out of the way so we can focus on the more
pleasant, and the psychology of curiosity.

Explaining Social Behavior: More Nuts and Bolts for the Social Sciences - Elster
Offers an overview of key explanatory mechanisms in the social sciences, relying on hundreds of
examples and drawing on a large variety of sources-psychology, behavioral economics, biology,
political science, historical writings, philosophy and fiction.

Financial Speculation - Trading Financial Biases and Behaviours - Ashley

Draws on a wealth of revealing and instructive market insights, stories and anecdotes, challenges all
the tired cliches about speculation, and slaughters many of the outdated sacred cows of finance. The
book ranges across all the major asset classes, looks at past masters of the art, examines modern
thinking on finance and risk, and assesses the value of experts, economists, chartists, market gurus
and analysts.

Fooled by Randomness - Taleb

A fund manager favourite. Sets forth the idea that modern humans are often unaware of the
existence of randomness. They tend to explain random outcomes as non-random. Human beings
overestimate causality and tend to view the world as more explainable than it really is, so they look for
explanations even when there are none.

Freakonomics: A Rogue Economist Explores the Hidden Side of Everything - Levit & Dunber
A collection of articles written by Levitt, an expert who has already gained a reputation for applying
economic theory to diverse subjects not usually covered by "traditional" economists. He does,
however, accept the standard neoclassical microeconomic model of rational utility-maximization.
In Freakonomics, Levitt and Dubner argue that economics is, at root, the study of incentives.

Heuristics and Biases: The Psychology of Intuitive Judgement - Gilovich, Griffin & Kahneman
When are people’s judgments prone to bias, and what is responsible for their biases? This book
compiles psychologists’ best attempts to answer these important questions.

Identity Economics: How Our Identities Shape Our Work, Wages, and Well-Being
- Akerlof and Kranton
Monetary incentives are counter-productive in team environments that succeed in creating a culture
of identity that fosters teamwork, where mission understanding and commitment are core to
performance.
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Inside the Investor’s Brain - Peterson

Explains the “hardwired” mistakes made by most investors and reveals the simple steps you can take
to overcome these obstacles and improve your financial decision-making skills.

Judgement in Managerial Decision Making - Bazerman

When faced with a decision, we all believe we’re weighing the facts objectively and making rational,
thoughtful decisions. In fact, science tells us that in situations requiring careful judgment, every
individual is influenced by his or her own biases to some extent. Drawing on the very latest behavioral
decision research this book examines judgment in a variety of managerial contexts and provides
important insights that can help you make better managerial decisions.

Influence: The Psychology of Persuasion - Cialdini

Introduces you to six principles of ethical persuasion: reciprocity, scarcity, liking, authority, social
proof, and commitment/consistency. A chapter is devoted to each and you quickly see why Cialdini
looks at influence as a science. Each principle is backed by social scientific testing and restesting.
Each chapter is also filled with interesting examples that help you see how each principle can be
applied.

Judgement Under Uncertainty: Heuristics and Biases - Kahneman, Slovic & Tversky
An important collection of papers, with relevance to anyone working in fields where decision-making
is at the core.

Liar's Poker: Rising through the Wreckage on Wall Street – Lewis

A non-fiction, semi-autobiographical book by Michael Lewis describing his experiences as a
bond salesman on Wall Street during the late 1980s.

Manias, Panics, and Crashes - Kindleberger and Aliber

An engaging and entertaining account of the way that mismanagement of money and credit has led
to financial explosions over the centuries. Covering such topics as the history and anatomy of crises,
speculative manias, and the lender of last resort, this book puts the turbulence of the financial world
in perspective.

Market Mind Games: A Radical Psychology of Investing, Trading and Risk - Shull
Provides a pragmatic approach to develop a strategy for your mind to work in harmony with your
strategy for trading, enabling you to improve your decision making by navigating the shifting
relationships among reason, analysis, emotion, and intuition.

Market Psych - Peterson & Murtha

Assists investors in understanding their personality styles, emotional triggers, values and assumptions,
and reveals how to invest comfortably with in your newfound investor identity.

Mistakes Were Made (but Not by Me): Why We Justify Foolish Beliefs, Bad Decisions and
Hurtful Acts - Tavris and Aronson
Takes a compelling look into how the brain is wired for self-justification. When we make mistakes, we
must calm the cognitive dissonance that jars our feelings of self-worth. And so we create fictions that
absolve us of responsibility, restoring our belief that we are smart, moral, and right - a belief that often
keeps us on a course that is dumb, immoral, and wrong.
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Moneyball: The Art of Winning an Unfair Game - Lewis

The collected wisdom of baseball insiders (including players, managers, coaches, scouts, and the
front office) over the past century is subjective and often flawed. Statistics such as stolen bases, runs
batted in, and batting average, typically used to gauge players, are relics of a 19th-century view of the
game and the statistics that were available at the time. The book argues that the Oakland A's' front
office took advantage of more analytical gauges of player performance to field a team that could
compete successfully against richer competitors in Major League Baseball. Brad Pitt and Jonah Hill
were nominated for Oscars for their roles in the movie version, but lost. Begs the question of whether
the movie business runs similar stats.

Morals and Markets: an Evolutionary Account of the Modern World - Friedman

Demonstrates that our moral codes and our market systems - while often in conflict - are really
devices evolved to achieve similar ends, and that society functions best when morals and markets
are in balance with each other.

Moral Markets : the Critical Role of Values in the Economy – Zak

This collection of essays provides an accessible guided tour of the frontier of current research in
sociology, economics, biology and philosophy.

Moral Sentiments and Material Interests: the Foundations of Cooperation in Economic

Life – Gintis
Presents an innovative synthesis of research in different disciplines to argue that cooperation stems
not from the stereotypical selfish agent acting out of disguised self-interest but from the presence of
"strong reciprocators" in a social group. Presenting an overview of research in economics,
anthropology, evolutionary and human biology, social psychology, and sociology, the book deals with
both the theoretical foundations and the policy implications of this explanation for cooperation.

More Than You Know: Finding Financial Wisdom in Unconventional Places – Mauboussin
Builds on the ideas of visionaries, including Warren Buffett and E. O. Wilson, but also finds wisdom in
a broad and deep range of fields, such as casino gambling, horse racing, psychology, and evolutionary
biology. He analyzes the strategies of poker experts David Sklansky and Puggy Pearson and pinpoints
parallels between mate selection in guppies and stock market booms.

Nudge: Improving Decisions about Health, Wealth, and Happiness - Thaler and Sunstein
We are all susceptible to biases that can lead us to make bad decisions that make us poorer, less
healthy and less happy. And, as Thaler and Sunstein show, no choice is ever presented to us in a neutral
way. By knowing how people think, we can make it easier for them to choose what is best for them, their
families and society. Using dozens of eye-opening examples the authors demonstrate how to nudge us
in the right directions, without restricting our freedom of choice. Nudge offers a unique new way of
looking at the world for individuals and governments alike.

Predictably Irrational: the Hidden Forces that Shape our Decisions - Ariely
Ariely explains how expectations, emotions, social norms, and other invisible, seemingly illogical forces
skew our reasoning abilities. Not only do we make astonishingly simple mistakes every day, but we
make the same types of mistakes. We consistently overpay, underestimate, and procrastinate. We fail to
understand the profound effects of our emotions on what we want, and we overvalue what we already
own.
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Priceless: The Myth of Fair Value (and How to Take Advantage of It) – Poundstone
Reveals how we perceive value and how businesses apply the principles of Behavioural Economics in
setting the prices we pay.

Prospect Theory: For Risk and Ambiguity – Wakker

Risks and uncertainties play a role in virtually all of our decisions. This book presents modern models
that are both realistic and tractable. All mathematical tools are related to real-life processes.

Rational Decisions - Binmore

A concise, accessible, and expert view on Bayesian decision making.

Strangers to Ourselves: Discovering the Adaptive Unconscious – Wilson

Attempts to explain why there’s so much about ourselves that we fail to understand, which can lead to
misdirected anger.

Subliminal: How Your Unconscious Mind Rules Your Behavior - Mlodinow

Over the past two decades of neurological research, it has become increasingly clear that the way we
experience the world—our perception, behavior, memory, and social judgment—is largely driven by the
mind's subliminal processes and not by the conscious ones, as we have long believed.

Sway: The Irresistible Pull of Irrational Behaviour – Brafman

What makes people act irrationally? This book explores the submerged mental drives that undermine
rational action, from the desire to avoid loss to a failure to consider all the evidence or to perceive a
person or situation beyond the initial impression and the reluctance to alter a plan that isn’t working.

The Behavior Gap: Simple Ways to Stop Doing Dumb Things With Money - Richards
How to rethink all kinds of situations where your perfectly natural instincts (for safety or success) can
cost you money and peace of mind. Avoid the tendency to buy high and sell low; avoid the pitfalls of
generic financial advice; invest all of your assets - time and energy as well as savings - more wisely;
quit spending money and time on things that don't matter, etc.

The Big Short: Inside the Doomsday Machine - Lewis

About the build-up of the housing and credit bubble during the 2000s. Describes several of the key
players in the creation of the credit default swap market that sought to bet against the collateralized
debt obligation (CDO) bubble and thus ended up profiting from the financial crisis of 2007–2010.
Also highlights the eccentric nature of the type of person who bets against the market or goes against
the grain.

The Black Swan: The Impact of the Highly Improbable - Taleb

Focuses on the extreme impact of certain kinds of rare and unpredictable events (outliers) and humans'
tendency to find simplistic explanations for these events retrospectively. This theory has since become
known as the Black Swan theory.

The Bounds of Reason: Game Theory and the Unification of the Behavioral Sciences – Gintis
Game theory alone cannot fully explain human behavior and should instead complement other key
concepts championed by the behavioral disciplines. Shows that just as game theory without broader
social theory is merely technical bravado, so social theory without game theory is a handicapped
enterprise.
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The Construction of Preference - Lichtenstein and Slovic

When asked to make a decision, people often don’t really know what they want; they must construct
their preferences ‘on the spot’. This book describes the concept of preference construction, tracing the
blossoming of this idea within psychology, economics, marketing, law, and environmental policy.

The Foundation of Behavioural Finance - DeBondt

A compilation of groundbreaking articles from leading voices in the financial and psychological
communities to create a volume that introduces this emerging field of study. An accessible and
insightful text that explores the real-world behavior of individuals and institutions.

The Handbook of Experimental Economics - Kagel and Roth

Presents a comprehensive critical survey of the results and methods of laboratory experiments in
economics. Focus is on elucidating the role of experimental studies as a progressive research tool
so that wherever possible, emphasis is on series of experiments that build on one another.

The Hour Between the Dog and Wolf - John Coates

Explains how we think with our bodies as well as our brains when we take risks at work, in sport, on
the battlefield, and the financial markets. Shows that under the pressure of risk, we biologically
transform, a metamorphosis Coates refers to as the hour between dog and wolf. A fascinating read
for anyone who has worked on a trading floor.

The Inner World of Money: Taking Control of Your Financial Decisions and Behaviors - Martin
Explores the real role of money in our lives, the reasons for the roadblocks people create by being
financially irresponsible, and whether money really can bring happiness.

The Little Book of Behavioral Investing: How not to be your own worst enemy – Montier
Enables you to identify and eliminate behavioral traits that can hinder your investment endeavors and
show you how to go about achieving superior returns in the process.

The Methodology of Experimental Economics – Guala

Provides the first comprehensive analysis and critical discussion of the methodology of experimental
economics, written by a philosopher of science with expertise in the field.

The Misbehavior of Markets: A Fractal View of Financial Turbulence - Mandelbrot

Markets, we learn, are far riskier than we have wanted to believe. From the gyrations of IBM's stock
price, to cotton trading, and the dollar-Euro exchange rate - Mandelbrot shows that the
world of finance can be understood in more accurate, and volatile, terms than the tired theories of
yesteryear.

The Paradox of Choice: Why More Is Less – Schwartz

We are faced with far too many choices on a daily basis, providing an illusion of a multitude of options
when few honestly different ones actually exist.

The Person and the Situation: Perspectives of Social Psychology - Nisbett, Ross & Gladwell
Explores the complex ideas about personal versus situational determinants of behavior and relates the
lessons of our discipline to important political, social, and even philosophical issues.
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The Psychology of Investing – Nicholson

Traditional finance has focused on developing the tools that investors use to optimize expected return
and risk. Understanding the motivations behind this behavior is extremely important when applying
these financial tools.

The Psychology of the Foreign Exchange Market - Oberlechner

Sheds light on the psychology behind spectacular market phenomena as well as on subliminal
processes in daily trading decisions. Incorporates new insights from a variety of psychological
perspectives – ranging from social market dynamics; the role of affects and intuition in trading
decisions; cognitive biases of traders; psychological risk–taking phenomena; subjective attitudes
in market expectations; the interdependent relationship between trading institutions and the financial
news media; the dynamics of market rumors, and personality characteristics of successful traders; to
the role of metaphors in the decisions of participants and the nature of the market.

The Social Animal: A Story of How Success Happens - Brooks

Weaves a vast array of new research into the lives of two fictional characters, Harold and Erica,
following them from infancy to old age. In so doing, it reveals a fundamental new understanding of
human nature. Most success stories are explained at the surface level of life. They describe academic
ability, hard work and learning the right techniques to get ahead. This story is told one level down, at
the level of emotions, intuitions, biases, genetic predispositions and deep inner longings. The result
is a new definition of success, highlighting what economists call non-cognitive skills – those hidden
qualities that can’t be easily counted or measured, but which in real life lead to happiness and
fulfilment.

The Success Equation: Untangling Skill and Luck in Business, Sports and Investing
- Mauboussin
An excellent explanation of the distinction between luck and skill in a variety of activities and a
practical approach to maximising the latter. By explaining it in the context of sports, Mauboussin
shows the common sense aspect to applying process, discipline and self-awareness to investing.
A practical explanation of the tension between luck and skill, defining the difference between the
Think Twice: Harnessing the Power of Counterintuition – Mauboussin
Shows you how to recognize-and avoid-common mental missteps, including: Misunderstanding
cause-and-effect linkages; Aggregating micro-level behavior to predict macro-level behavior;
Not considering enough alternative possibilities in making a decision; Relying too much on experts.

Thinking and Deciding – Baron

How should we think? What, if anything, keeps us from thinking that way? How can we improve
our thinking and decision making? Addresses these questions, as well as topics such as risk,
utilitarianism, Bayes’ theorem, and moral thinking.

Thinking, Fast and Slow – Kahneman

Explains the two systems that drive the way we think. System 1 is fast, intuitive, and emotional;
System 2 is slower, more deliberative, and more logical. Kahneman exposes the extraordinary
capabilities — and also the faults and biases — of fast thinking, and reveals the pervasive influence of
intuitive impressions on our thoughts and behavior. The impact of loss aversion and overconfidence
on corporate strategies, the difficulties of predicting what will make us happy in the future, the
challenges of properly framing risks at work and at home, the profound effect of cognitive biases on
everything from playing the stock market to planning the next vacation — each of these can be
understood only by knowing how the two systems work together to shape our judgments and
decisions.
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Ulysses and the Sirens: Studies in Rationality and Irrationality – Elster

Elster critiques the notion of rationality in the economist’s sense, as a faculty that is concerned with
maximizing the satisfaction of agents’ present preferences. He contrasts this notion of locally
maximizing rationality with what can be called globally maximizing rationality. This latter concept is
perhaps best illustrated by those interesting situations where the best “strategy” is irrationality.

Ulysses Unbound: Studies in Rationality, Precommitment, and Constraints – Elster

This provocative book argues that, very often, people may benefit from being constrained in their
options or from being ignorant.

Utility of Gains and Losses: Measurement-Theoretical and Experimental Approaches – Luce

Provides a penetrating analysis of the axioms underlying human choice theory and a thorough review
of the evidence. Most importantly, he illustrates the process of decomposing theories into testable
properties that become the building blocks for better theories. His relentless desire to reformulate
theories in response to evidence is what makes this an extraordinary book by an extraordinary scientist.

Value Investing: Tools and Techniques for Intelligent Investment - Montier

Explains how value investing is the only tried and tested method of delivering sustainable long–term
returns. Montier shows you why everything you learnt at business school is wrong; how to think properly
about valuation and risk; how to avoid the dangers of growth investing; how to be a contrarian; how to
short stocks; how to avoid value traps; how to hedge ignorance using cheap insurance. Crucially, he
also gives real time examples of the principles outlined in the context of the 2008/09 financial crisis.

What Investors Really Want: Know What Drives Investor Behavior and Make Smarter Financial
Decisions – Statman
Through compelling anecdotes and rigorous academic research, Statman covers a wide range of
general and specific topics, from how investors attach meaning to their money in the US, and in other
cultures around the world to the common cognitive errors that befall many investors. This is the book
that teaches investors to recognize the hidden reasons why they choose certain stocks, bonds, ETFs
and other financial products—and how to make the right decisions with their money.

Why Smart People Make Big Money Mistakes - Belsky and Gilovich
Reveals the psychological forces — the patterns of thinking and decision making — behind seemingly
irrational behavior. Explains why so many otherwise savvy people make foolish financial choices: why
investors are too quick to sell winning stocks and too slow to sell losing shares, why home sellers leave
money on the table and home buyers don’t get the biggest bang for their buck, why borrowers pay too
much credit card interest and savers can’t sock away as much as they’d like, and why so many of us
can’t control our spending.

You’re Not That Great - Crosby

An motivational look at how behavioural bias holds us back in day-to-day life, which suggests rules
for successful living that are based on the pursuit of excellence rather than the assumption of it.