A Scientific Revolution in Finance
July 15, 2014
A financial revolution has begun, one that leverages the power of psychological data to help investors make better decisions.
IMATCHATIVE, a San Francisco-based company, is a key player in this sea change. Their network, AltX, , connects investors with hedge funds, using the same nuanced behavioral models that have upended the worlds of movie-rental, bookselling, and online dating.
Embodying AltX's human-centered vision is Dr. Thomas Oberlechner, the company's Chief Science Officer. Oberlechner comes to AltX from the worlds of clinical psychology and academia, and his groundbreaking research on behavioral drivers in financial markets has been covered in the Washington Post, the BBC, and the Neue Zürcher Zeitung.
According to Oberlechner, the next generation of investing tools are moving beyond risk-adjusted return as their sole guiding metric. "The traditional focus on outcome data is shortsighted," Oberlechner says. "These outcomes are produced in the interaction between highly volatile, unpredictable environments, so you never really know whether the returns are based on chance or skill."
Oberlechner credits AltX's success to the fact that recent breakthroughs in behavioral science are built into the application's core. “We're taking elements of how people decide and understand the market around them," he explains. "We're analyzing their unique personalities, values, goals, and ways of processing information. Then we integrate that into our models."
Those AltX models combine Oberlechner's psychological insights with deep financial data and a powerful analytics engine. The resulting mix of qualitative and quantitative information greatly facilitates investors to find the right funds for their needs.
"This," says Oberlechner, "is where science and systematic behavioral assessments can tremendously support traditional investment approaches that focus on past outcomes only."
The secret of every revolutionary financial tool, Oberlechner explains, is adaptability.
“What differentiates good therapists from bad therapists is that they can flexibly adjust to who they are dealing with, and don't impose the same model on everyone. Providing support to financial decision-makers is no different—the more you know about what makes an investor unique and the behavioral make-up of fund managers, the better you can connect both sides."
That support, he says, can literally change the way both groups see the world. “It's transforming flat, two-dimensional shadows of financial decision-makers into full, three-dimensional people and organizations.”
Interested in finding out more about Dr. Oberlechner and AltX? Visit www.GetAltX.com