Why do you buy a lottery ticket when the odds of winning are one out 200 million? In this episode, Meir Statman, Professor of Finance at St. Clara University, talks about his book Finance For Normal People. Listen as he talks about what drives our hope for wealth, financial security, the need to provide for the family, and the need to give back to our society. 

Greg and Meir talk about financial facts and human behavior, including overconfidence, hindsight, unrealistic hopes, and exaggerated fear, and we’ll get Meir’s advice on avoiding ignorance, gaining financial knowledge, and better ways to achieve what we want financially. 

We’ll also get some strategies on investing and his thoughts on ESG (Environment, Social, and Governance) for organizations.

Is the ESG Investing Movement a function of people viewing investing more and more as a form of expressing their values and beliefs?

It was called SRI (Socially Responsible Investing). I started doing that sometime in the eighties because this, to me, was the perfect example of those utilitarian, expressive and emotional benefits. When I talked about it with standard finance people, I said, “Look, people care about risk. People care about expected returns, but they also care about being true to their values.” And you cannot easily squeeze that fidelity to values into either a risk or a return box. 

Thoughts on Donating Money for Tax Cuts or Personal Gains

What I'm saying is that hypocrisy is not something to be admired. So, if someone is in it to feel that warm glow of “I'm doing good for people who can use that money better than I can, who are poorer than me. I am helping clean the environment or whatever it is.” Once you have that and think, “I'm going to be making a ton of money out of it.” It just feels wrong.

Could you give one piece of advice to the people trying to figure out how to optimize their utility in each of these buckets of happiness?

What good is it if you have a ton of money, and because you are so stingy, your children and spouse are estranged from you? Lots of fights in the family, and so on. I say, you know, what have you gained? Now, you're going to be dead, and you're going to be buried with those sacks of money. So think about it in units of wellbeing and think about what matters in wellbeing. Of course, money underlies all of it. With no money, it's tough to feed the family. But there are other things. There's health. There's mental and physical health. And so, you'll have to look at all of these elements, including being true to your values and so on. And see that money is necessary for all of them.

Guest Profile

• Meir Statman’s Profile at Santa Clara University
• Meir Statman’s Official Website
• Meir Statman on LinkedIn
• Meir Statman on Twitter

His Work

• Meir Statman on Google Scholar
• Behavioral Finance: The Second Generation
• Finance for Normal People: How Investors and Markets Behave
• What Investors Really Want: Know What Drives Investor Behavior and Make Smarter Financial Decisions