Elm Partners

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Victor Haghani <victor@elmfunds.com>

Dear Alan, Ian and Megan,

Vince Darley kindly told us about your Computer Lab Group Design Projects program, and suggested that a project we’ve been working on may be a good fit with your program. My company, Elm Partners, would like to submit a brief for this project, which we think should have a very significant educational value. Looking forward to discussing this with you, and hoping it merits a place in your project list.

With kind regards, Victor Haghani CEO and Founder, Elm Partners Victor@Elmfunds.com

Title: Flipping to a Fruitful Future

We’re facing a savings crisis. Too many in our society won’t have adequate savings for their retirement, despite favourable long-term expected returns available in the stock market and government policy encouraging savings by granting tax-free status to qualified retirement accounts. People don’t save enough, but more inexcusable is that they manage their investments poorly. Research we’ve done (please see our recent paper on ssrn and this Bloomberg article) on how people bet on a biased coin highlights the need for more effective training in practical investment skills. We believe that playing a simple coin flipping game in combination with appropriately linked instruction can effectively teach people to do a better job managing their savings. This approach to teaching decision making under uncertainty is novel, and differs with the most common gamified versions of investing which teach participants all the wrong lessons about investing-- no one ever won an investing tournament by buying a market portfolio index fund. A rough prototype of the game which was used for our experiment is: coinflipbet.herokuapp.com. The project is to develop an engaging interactive game around coin flip betting that will more closely simulate lifetime investing. Users should get feedback on how they’re doing compared to optimal strategies, such a fractional Kelly betting, and to the pool of other participants to date. They should be able to see what their betting behaviour implies about their utility function, and what in turn that says they would do in other circumstances. They should get a feel for randomness and learn to be on guard against a number of powerful and damaging cognitive biases that stand in the way of sound investing, such as gambler’s fallacy and loss aversion.

-- Victor Haghani Founder www.elmfunds.com US: (307) 222-4725 UK: +44 20 3290 4725