Now it's clear why those Motley Fool headlines are so compelling to click on. Inside the brain of the investor, fear of loss is twice as great as the joy of gain. In the fascinating "Inside the Investor's Brain", Richard Peterson explains why and much more.

An investor is more likely to wager $1000 on a fifty-fifty coin flip if he had just lost $1000 in an investment than if he had just gained $1000. Studies have shown that people would make the risky wager more often when they were in the red (~80%) but fewer people would make the wager when they were in the black (~30%). Why? It's the same wager. But, as Peterson shows in one of his fascinating illustrations, we investors put more import into losses than gains.

This type of seemingly irrational behavior is what is going on behind every stock transaction, hedge fund decision, or institutional investment, and it's the main reason why it takes a genius (or a very lucky person) to consistently beat the market. It's also why I left specific investment advice out of my book about Credit Arbitrage. There is simply too much of a human element to trading. While the author does admit that financial advisers fare better than dartboards or the Dow Jones average for that matter, he notes that the wisdom of the collective is always smarter than its constituent parts. Citing Mauboussin, Peterson describes why it's so difficult to beat the market.

Peterson also goes on to get into the physiology of the brain and how it reacts to retail situations numerous real-world investment anecdotes to illustrate his points. The result is an entertaining look into what goes on in the minds of investors, which everyone should read.

- JSB Morse