Dr. Daniel Crosby on Behaviorally Optimal Portfolios, Risk Composure and the Casino Myth

In this Excess Returns episode, Daniel Crosby discusses behavioral investing, including why a fund can produce strong returns while its average investor loses money. He covers safety, stability and success portfolios, the distinction between risk tolerance, risk capacity and risk composure, and how rules and diversification can help investors stay with a plan. The conversation also addresses gambling apps and prediction markets, recency bias, social media feedback loops, and AI’s role in freeing advisors for human relationships.

1. Crosby describes a fund that returned over 18% annually for a decade while its average investor lost money.
2. He discusses building safety, stability and success portfolios around different financial needs.
3. He distinguishes risk tolerance, risk capacity and risk composure.
4. The episode covers rules, diversification, benchmark differences, education, environment and encouragement as tools for changing investor behavior.