 It's an absolute pleasure to have you on the podcast and for everybody's benefit I just thought if you could start by giving us a bit about your background and sort of explaining the context to what you do. Thanks Jake, great to be here. Well I suppose the very quick background, I started life not as a behavioural person at all, I started as a very traditional economist with a little bit of philosophy thrown in for Spice. Didn't know what I wanted to be when I grew up so I became a management consultant for a while. So it seemed the least committal career path I could choose. And then it got to the point I did a lot of work there in financial services and you know that raised my interest in financial decision making but it got to the point where I wanted to go back to academia and do a PhD and I started looking for something to focus in and my plan was actually to go towards philosophy and away from economics and to study the bit of philosophy that's almost the link between the two which is the philosophy of rationality. Economics assumes this that everyone's always rational. I thought that's really fascinating philosophers have said a lot about this over the years and as I was reading to put together my PhD proposal I stumbled across this field of behavioural economics and of course the subfield below that of behavioural finance and it just absolutely caught my attention from the first moment. It was this wonderful mix of deep theory but applied practice of economics, of maths, of philosophy but also psychology which up to that point I had not studied at all and I just completely swung my entire PhD after that in a sort of fit of complete self-indulgence. Spent three years studying it and really had no plans for that to be a career because this was in sort of early 2000s the field was still relatively unknown out of outside academia in fact even inside academia it was very much considered to be the lunatic fringe of the economics faculty at that time and so I yeah I was very lucky because I started my PhD and I think 18 months later Daniel Kahneman won the Nobel Prize for economics which was a neat trick given that he wasn't an economist and this whole field of behavioural economics just really shot into prominence so I finished my PhD I spent a bit of time one foot in academia one foot in consultancy and then in 2006 I joined Barclays to set up what was the world's first dedicated team of behavioural finance specialists inside a bank and I led that team plus the quant team for Barclays wealth globally for 10 years I now run a small FinTech we are a spin out of Oxford University Oxford risk and we build software to help people make better financial decisions so again a combination of data analytics behavioural science digital technology quantitative finance all coming together to really try to guide people more comfortably through the decisions that they make yeah no that that sounds fantastic and I think yeah finance is such an interesting topic not just investing but also personal finance and I know we spoke briefly before about your your passion for sort of educating people and I think with investing it's particularly hard because it can seem like a very sort of mysterious art to sort of get into but actually it's probably easy in some ways than people realize but there's this lovely quote that I came across doing research from Benjamin Graham who I think was Warren Buffett's mentor and he once said that the investors chief problem and even his worst enemy is likely to be himself would you say that's that's a fair statement based on your your understanding yeah absolutely and I think there's two important things there you mentioned the complexity you know investing is full of numbers and jargon and complexity and it really makes people very daunted about having a go so one of the ways in which investors worse enemies themselves is they are they think they have to get it perfectly right in order to start at all and that is completely wrong because you can get started in a very simple way without having to know very much as long as you keep it really simple but people find that emotionally uncomfortable to do so they sit on the sidelines with it you know they're hard-earned cash earning nothing in a savings account in fact you know now particularly with inflation ticking up earning negative right sitting in savings gap and being too emotionally scared to invest that money then the other one which is probably more what Benjamin Graham was after is once you are an investor once you've put money into account honestly for most people the rules of investing are extremely simple figure out what money you need to keep aside as a safety buffer put the rest to work diversify and leave it alone now those things are not complex rules but it is really very difficult again emotionally difficult for investors to follow them particularly the leave it alone one which is really what Benjamin Graham was was referring to because when we see markets go up and down and we read the newspapers about you know this stock or Apple does this and Tesla does this and we constantly think we need to be doing something and honestly doing something is just most of the time complete gambling and you're gambling events millions of other people who are also you know gambling many of whom are doing it professionally are unequipped with far more data far more information far more expertise than you are so for most investors really if you buy a diversified portfolio and leave it alone that's the best that's what you should do and yet we don't we really constantly think this is action bias I need to be doing something right right yeah we're prone to taking action when we don't need to in in the case of investing long-term it's possibly the worst thing to be action action bias just one point because one thing is interesting the thing the reason why people are daunted sitting on the side is often we're told that investing is a casino and in the short term that is true I mean it's a casino in the sense that none of us can really predict what's going to go up or down when right in the long term it is a casino but the other way around so the reason people are afraid of afraid of casinos quite reasonably is the odds are in the house's favor right so if you ready casino again and again and again you are going to lose over time now this is this the difference between short and long term is very important then in in both casinos and in investing but investing the important thing is by investing you are the house over long periods of time if you stay invested in a diversified portfolio you're playing with the casino not against it and so actually the risky thing to do is leaving your money doing nothing in a bank account and yet people are averse to it because I think all investing is a casino it is but it's a casino where you're in where you're the house right no I mean that's so true and I guess when we talk about long term we're talking you know five ten fifteen twenty years and longer but the temptation especially news obviously if there's a story if there's a narrative that sounds interesting or exciting or even makes us feel fearful we might take action that you know we shouldn't think we saw a lot of that it's kind of during the pandemic you know there was a lot of them they talked about these sort of meme stocks which which I you know you probably know all about and why why do people get sucked into those those stories do you think well well many reasons one so in all financial decisions the broad problem is that there is a gap between the sensible thing to do or the right thing to do and the thing that feels emotionally comfortable to do in the moment so we all deviate from good behavior in the pursuit of short-term emotional comfort now one of the things that gives us emotional comfort of taking on a risky investment is familiarity so meme stocks by the very fact that they are memes and the names are everywhere they become very familiar to people and therefore they start to seem emotionally comfortable to people and so people chase it in recent times particularly you know in the pandemic there was another element to this that I think was really important I mean what there are many other elements one is a lot of people had a lot of time on their hands during the pandemic and indeed many people had cash balances that were going up because they weren't traveling they weren't going out etc and so they were saving money so there's more money time these familiar stocks but I think also the other thing that makes people really really comfortable doing things is knowing that lots of other people are doing that thing so the social angle to those meme stocks became really really important and it gave people rationales for getting into them that often wasn't even a financial one anymore it was you know it was that by buying this we're sticking it to the you know to those in charge so there was a social angle there's a whole social media influencer angle around that all of these things that gave people just that one more reason to get involved in this and they were reasons that had very little to do with what economists would tell you is a right you know is it is a rational way of choosing a stock which is think about the long-term risk return trade-off this was a social pressure and emotional pressure familiarity all of these things come together yeah no that makes a lot of sense and in the little reading I have done about investing and I read this fantastic book I'm sure you've you've come across it by a guy called William Green I think it came out last year or something and richer wiser happier I think the title of the book was but it was he'd interviewed some of the world's most famous successful investors on you know how their approach to investing and sort of what came through was that they all seem to have a quite a common personality type they're very full of very rational very seem to be able to very good keeping their emotions in check and they have a sort of plan that they've created in advance and I guess that's sort of to stop them from reacting to it to news or whatever it is in the moment completely so that even if you're not that sort of person if you can devolve your decision-making to a plan or a structure or a set of rules that you've set up that means you you can be the calm collected person because you've effectively taken a large part of your emotional responses out of out of the system and I do exactly the same I have a I call it my investing my investing constitution I have a set of rules that governs what I'm allowed to do and not allowed to do yeah and I'll just give you one example I for example in my own investing never ever allow myself to make any decisions during the week because during the week I simply don't have the time or the context it's not my job to follow the markets day-to-day I don't have the time or the context to come at a reasoned thoughtful decision and yet if I allowed myself to do that I guarantee you I would be tempted to because I would see something coming in and the financial media or whatever and I just came to the conclusion years ago that on balance you know occasionally I might miss out on some great opportunity but I've also written a rule that you know I don't chase single opportunities like that either so on balance if I only make investing decisions on the weekend I can do so while the markets are closed when I can sit down with you know my spreadsheet and the whole portfolio in front of me I can see where the gaps are I can spend time on it and crucially when I when I make a decision and I put the trade into the you know to the system to the trading system it doesn't go live until Monday morning so I've got an automatic pause point and I've got this emotional break between deciding and the decision going alive which is you know the it's the equivalent of sleeping on the decision very seldom do I have to reverse it but it is really important if you want to make good decisions to build pause points and friction into into your decision process there's this common thought that you know to get people to do something you need to have make it as few clicks as possible and make it as easy as possible that's true if you're trying to sell someone something you you want to get them from from here to to the money in your account as quickly as possible yeah if you're trying to help people make better decisions you actually need to slow them down at various points and have these pause points yeah I mean it's critical isn't it for any big decision not just financial that I think they sometimes call it the you know the pause between stimulus and response you know if you're able to take that beat before you make the decision to sort of reflect on what what you've made as a choice is very very powerful I just wanted to go back to your time at Barclays and sort of over that 10 years what what did you learn about behavioral investing in that period that maybe sort of surprised you from from the initial start or your opinion changed oh yeah quite a lot of things I think firstly when we got in no one really knew what a behavioral finance team was going to do including us so there was a lot of experimentation over that time and you know we were we were building things testing them and the experimentation wasn't even so much on what we were delivering to clients it was what will the organization accept from this new idea you're dealing with a bunch of bankers who quite traditional like dealing with numbers like all the jargon and here you come these odd psychologist people who are coming in trying to get them to make a behavioral overlay onto this so simply getting internal acceptance of these ideas was quite tricky initially then we had the financial crisis of 0809 so I started the team in late 2006 we had about 18 months of you know yeah good times the end of the good times and then and then this massive crisis and the only reason I think we weren't the first team to be fired when they started cutting jobs because you can imagine some senior manager going right I need I need to cut headcount by 20% what are these odd people do you know behavioral psychology first out the door is because we had decided that what we were going to do is is not just deliver behavioral finance into the organization by PowerPoint but actually build tools and we were in the middle of a rollout of a software based financial personality assessment tool which bought us six months of leeways they couldn't fire us immediately and the really interesting thing and we see this again in COVID is in times of crisis and in times of emergency the focus that people have on behavioral science and on emotion and psychology just goes up so by the end of the crisis we were in a much stronger position as a team into inside the bank than we were before I think though I think the main thing that I learned by the end and I've mentioned we were rolling out this tool and we did we you know we built this financial personality assessment and it was it was great it was quite widely used but that were that was really the only tool we built we spent a lot of the rest of the time either if you want to change the way people do things I think you know the first thing you do is you down you sit everyone in a seminar room every six months and you download PowerPoint slides into their brains and you hope that they that they absorb it and do things differently failing that you you bake it into the rulebook you get get you may get good buddies with the compliance department you say you guys want to make this happen because it's good so we did a bit of that and thirdly you actually just bake it directly into the technology that people are using and we did far too much of the first two and not enough of the third one and I genuinely think if you go into any person's job and you come and you say I got all these new ideas that are coming from this academic field of behavioral science and they're gonna really enable you to deliver a better service for your clients etc etc and and it's great the trouble is as good as those models are you've also just made that person's life more complicated because what they're doing already as a financial advisor for example you know I've already looking at all these numbers of someone's balance sheet and their goals and their plans etc and yet I completely get that their emotional state and their personality is important but you're asking me the advisor or them the clients to do all the hard work so I think the main thing I learned from that which we now take forward at Oxford risk is if you want to bring the complexities of behavioral science into helping people make better decisions at scale yep you have to build tools that simultaneously makes people's lives easier and makes it you know they don't have to become a behavioral expert you've built it in software and you can use it and so that's really you know what we're trying to do now is behavioral finance on its own is pretty useless but when you start coupling it with data analytics with digital and technology's delivery mechanism with traditional quantitative finance you build it into IT systems etc then you can really start to make a difference right now that that that makes a lot of sense so people effectively become behavioral finance by people by proxy just by default by using the software yeah now that makes a lot of sense and then yeah I mean I think we saw so many other examples recently in the pandemic of behavioral science being applied with government messaging you know hand-washing and stuff in the UK so yeah I mean that's a really interesting point I've never considered that during those times of crisis the interest in behavioral science that it goes goes up rather than goes down and I just wanted to ask you another question on this topic of financial literacy because I know it's something you're interested in and what why do you think you know financially financial literacy is still so poorly taught in in school in the main that's an interesting question I think it's difficult to do right now I don't know if you're like I am but you know I did let's say I did biology at school right I sat through all these lessons and now I've got a few bio biological facts and figures of my fingertips but most of what I learned at school in terms of actual content is long forgotten right the stuff that isn't forgotten other techniques that you learn so rudiments of you know mathematics or all that sort of stuff and the problem with a lot of financial literacy is it's trying to equip people with knowledge for decisions that they aren't actually at the point in their lives that they're making those decisions at the moment I can teach people about mortgages till I'm blue in the face but this person probably isn't going to take out a mortgage until they're 15 years in the future so you know it's just it's just wasted it's time wasted and there's a lot of evidence looking at the efficacy of financial education you design the education of course there are better or worse ways of designing it but the evidence suggests that if you build financial education you sit people in a seminar room and you measure their knowledge going in and you measure their knowledge going out and we can demonstrate that people do in fact learn things in the course of the seminar but measure whether six months later they have changed their behavior in any way and the answer is invariably no so financial education mostly is an extremely expensive way of achieving almost nothing and here again for me the real answer is is is technology so what we could think of as just in time education where you're giving people small nuggets of education at the time at which they're making these decisions so it's relevant to what they're doing there's no 15 year gap between the information coming in what I need to do it's delivered digitally in small nuggets and that can be extremely powerful because you're enhancing the learning by doing thing and I think in financial education we need to at schools the evidence would suggest there's a certain amount we can do when people are really young but we need to think of this is about teaching them techniques not not facts about about finance and frankly basic numeracy is probably more important than financial then specifically financial numeracy if we can get people just to be more numerate that's that's going to help but and then the other thing and then later in life you know just start to build online banking with more information thrown in that can be personalized you personalize what you put in front of people at that point and then you're going to have a much stronger effect that's really interesting the technology argument I mean it makes a lot of sense now I think I think about it especially some of the financial decisions I've had to make if there been some sort of technology helping me to avoid you know some of the mistakes that I might have made that would obviously be a huge advantage but I guess there's also big ethical responsibility there on in terms of providers of that technology how I guess how do you how do you govern that in terms of if people don't know their decisions are in some way being you know influenced yeah and that's a really important point you know our raison d'etat at Oxford risk is to design things that help people make better financial decisions but then you have to have a really clear idea of what what you mean by better and of course financial services are highly regulated industry so some of what better is is defined by the regulators and that's actually very useful because it means that we can do certain things with great deal of confidence but you were talking earlier about meme stocks etc and you think about the Robin Wood things like you could use behavioral finance there just to encourage lots of people who shouldn't be doing it to catch falling knives more and it's possible to use applied behavioral science to encourage people to all sorts of things some of which are definitely not in their best interests I think the ethical side of it is absolutely vital and you know we have a whole series of things that we follow we want anything we do to be transparent we we do have these financial personality profiling tools but it's always upfront people always know about it we're transparent in how we're using it and we're very clear about what it is that we mean by better in any particular in any particular circumstance and and you know I think that is true of most people applying behavioral finance in in banks I've seen almost all of them I've seen very clear awareness of the need for an ethical code to do it but you know I'm guessing there are some out there who are going actually what's in our interest is to get this person to trade 20 times a month rather than 10 times a month and that's getting a scientist to nudge them in that direction yeah and I mean I'm obviously I don't know this for sure but I mean I know a lot of people sort of have in the media sort of highlighted that Robin Hood example that you mentioned which for the benefit everybody else I think it's a sort of essentially a stock trading app but they got into a lot of trouble because it's sort of incentivizing as you say people to trade more frequently and also very inexperienced investors to sort of speculate and use all sorts of instruments like options and things like that I mean I I've never used it the app because I think it's only US based but I imagine they were using lots of behavioral science practices wittingly or unwittingly to encourage young young people to to effectively gamble I suppose well I do know that they have a behavioral team I confess I know absolutely nothing about what that team is doing so I can't say anything about that but you know any firm that's looking at people's interactions online is probably using behavioral science somewhere in that in an intentional way you know yeah no I think that's very very fair and it's a sort of a line to that point if if somebody is sort of interested in in this topic you know investing in behavioral science and sort of wants to learn more about it but they're sort of starting out their journey would you recommend any sort of books or resources in particular as a way to get started you know assuming your your knowledge is like mine you've got some some understanding and you're interested in in maybe behind behavioral science already but you know don't have X years in in banking or finance or whatever it is yeah I don't know I mean I guess there's a lot of retail about out there around personal finance etc not necessarily all of it with an explicitly behavioral angle and it is important to realize that we can talk a lot about behavioral but some of these some of the basic principles of of personal finance have little to do with behavior and simply understanding you know the mathematics of interest rates and you know how these things work so you know there's a lot there I mean I confess I don't I don't actually know what I would recommend as the as the one go-to source for this starting investors there are a number that are potentially geared towards maybe higher net worth investors yeah I don't know a difficult question I don't I don't have a go-to book for that I'm afraid that's okay there's not always an answer for that question and and a sort of related questions it's sort of if you sort of had to pick one one message you know that you were giving to people starting out in investing based on all of your experience and how we you know actually behave as opposed to we think we're going to behave yeah what would that message be do you think if there's a single message and it doesn't you know I could give you a compound message with some components the single messages don't you don't wait yeah you know time is your favor as an individual investor the big thing you've got on your side is time you can as a professional investor you're forced to post results every 12 months etc as an individual investor you've got years and so just get in do something simple and and then work work it out from there don't sit on the sidelines and so the slightly more nuanced bit of that is is what do you get into so I just have these I mentioned them earlier that you know the four basic rules of investing one set aside an emergency buffer equivalent to let's say three months of your expenditure so that if something goes wrong you've got a buffer right emergency fund or whatever yeah exactly so don't don't invest that make you have to you have to buy yourself the ticket to invest your ticket to take risk comes from first making sure that there's a bit where you take no risk and it's it's all risk-taking is you should only take risk if you've done the work in preparation and and built your safety safety margins right and that's true whether you're you know skydiving or investing so rule one set something aside so that you can afford to withstand shocks to your life that might otherwise mean you're forced to sell at the bottom of a bad market right then you've bought yourself the time and you've bought yourself the rest of it put it to work in a diversified portfolio if you're young make it you know heavily equity-led you know take take take risk with the rest of it and then if that's all you want to do at this point leave it alone just just leave it sitting there if you want to do more at least this thing is sitting there and then you can start saying okay now how do I think about you know sure how should I rebalance this what can I learn about other things on the margin but don't don't let the best be the enemy good don't don't wait until you're an expert expertly knowledgeable about investing before investing because you're sitting outside the casino and you know and and as I said earlier you if you invest you're on the house's side yep yeah and then yeah I think I came across a study I don't you can tell me if this is apocryphal not from fidelity I think it was some famous study about they looked at who performed best in their portfolio and it turned out supposedly that the best performers were the ones that were either forgotten about their portfolio entirely or were dead so I guess that goes back to our original point of you know action bias if you're your own worst enemy if you interfere and actually what you want to do is just get started and then leave it alone for as long as possible yeah that's a lovely lovely way to end and if anyone wants to find out more about your work and what you do wants to follow you on on Twitter is there any any places the best to seek you out yeah Twitter is probably best I'm at at Greg B Davies on ES and all you can go to our website which is oxfordrisk.com and we have an Oxford risk Twitter feed as well which is more directed at financial advisors and financial professionals but there's a lot of content that we've put out on there. Brilliant and yeah it just remains for me to say thank you so much Greg for your time it's been a real pleasure having you on the podcast today thank you. Thanks Jake absolutely pleasure