What Julius Caesar teaches you about behavioural finance
Matthew Partridge explores what lessons investors can learn from William Shakespeare's Julius Caesar.
Shakespeare's Julius Caesar is based on events leading up the assassination of the Roman leader and the consequent civil war. Worried that Caesar is going to make himself king, a group of Senators persuade Brutus to take part in a conspiracy to kill him.
However, after Caesar is killed, Brutus (played by Paterson Joseph, pictured, in a RSC production) insists that they spare the life of Caesar's ally Mark Antony, who then manages to turn the citizens of Rome against the conspirators, forcing them into exile.
The key moment
At the beginning of the play, the conspirators, led by Cassius, are trying to persuade Brutus that he should join their conspiracy against Caesar. Cassius argues that there is nothing special about Caesar he is neither especially worthy nor rich that could justify his exalted status. Indeed, the only reason Caesar feels able to lord it over them all is because everyone is willing to let him. Cassius declares that "the fault, dear Brutus, is not in our stars/But in ourselves, that we are underlings".
Lesson for investors
Our investment returns are partly determined by chance, but they are also down to our own investment choices which in turn are rooted in "ourselves". Studies have shown that people do not act rationally, but often make flawed judgements under certain conditions.
Some common ones include: recency bias (placing too much weight on recent events), confirmation bias (ignoring evidence that doesn't accord with your set views), overconfidence (overestimating your ability to achieve strong returns) and anchoring (refusing to change your mind about an investment event when the facts change).
Other financial wisdom
Perhaps the most powerful psychological flaw among investors is the bandwagon effect, where people alter their behaviour to fit in with the crowd. This can lead to groupthink, where the market effectively becomes one person rather than a group of individuals. In Julius Caesar, the Roman mob swings from begging Caesar to crown himself to supporting the conspirators before switching back to Mark Antony. This leads them into irrational, crazed behaviour, such as tearing Cinna the poet to pieces simply because he happens to have the same name as one of the conspirators.