The Cramer Effect

In the year I’ve been writing this column, one name comes up again and again when I interview experts on investor psychology: Jim Cramer, the host of CNBC’s Mad Money. They cite him as the guy most likely to push our emotional buttons and spur us to make impulsive investment decisions. Below is a list of triggers to watch out for -- in Mad Money and the investing world in general.

Ticker overload

Ticker streams are mainly babble. But our brains are wired to see patterns in random data, so they appear meaningful. Plus, the ticker’s speed whips up our enthusiasm, much like the whirling wheels on a slot machine.

Bright lights, big noises

Casinos have long known that sounds and flashing lights generateexcitement and spur people to act impulsively. Investment decisions are best made logically, not emotionally.

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Shoot from the hip!

Cramer’s stock picks focus on recent events, and the recency effect—putting too much importance on the near term—blinds us to crucial long-term trends.

It’s all about Jim

With no one on the set to challenge him, Cramer becomes an undisputed authority figure. Authority figures hold undue sway over our opinions.

He talks reallyreallyfast

Cramer is a fast talker, and research has shown that a fast-talking broker is more successful at persuading people to invest than a broker who speaks at a slower pace.

Overconfidence man

Despite a track record that studies have found to be merely average, Cramer exudes unabashed confidence. That in turn can make viewers over­confident—and overconfidence is perhaps the number-one cause of poor investment decisions.

There’s a reason it drives bulls crazy

The motif of Cramer’s set features the color red, an intense and sometimes angry hue that is known for creating feelings of excitement or agitation.