In this six part series, we've
been going through behavioral

economics. Behavioral Economics
is the study of the what really

drives how we make our
decisions. When it comes to

economic decisions, how do we
decide what to buy, what to sell

how to build a portfolio? Now,
why is this important? Well,

it's important for syndicators
and fund managers and

businesses, because that's the
basis of how a lot of our

decisions get made. It's part of
our underwriting is this stuff

that's working on in the
background. Now, we went over

the cognitive reasons in our
last few videos, those things

that are errors in judgment and
how, where those come from, in

this video and the following,
we're going to talk about the

six emotional biases that start
of drive in the background or

emotional decision making. These
are the things that are weighing

you beneath the surface that are
creeping there that could dry

make our decision and
underwriting just way off. So

let's go ahead and get started
with the first three.

Here are the six emotional
biases. Now today's video, we're

going to talk just about these
first three, and go through what

exactly they are what they mean
to you. So the first one is the

real Biggie, actually, it's
called loss aversion. So it is

the fixation on the avoidance of
a loss. So think about it this

way, I'll give a personal story.
And that will kind of given a

good example, in about 1999. I
bought into a lot of stocks, I

figured I was a really good
stock trader and was making it

was doing really well. Now
Little did I know that in the

back of my mind was this loss
avoidance loss aversion problem.

So hidden back there was this
belief that, that I couldn't

take a loss that everything had
to come up. So when a stock went

down, rather than sell it, what
I would do is hold on to it,

thinking surely it's coming up.
Now if you know what was

happening during 1999, things
were starting to implode pretty

badly. We had almost reached the
top 2000 happened. And then

after 2000, things went downhill
pretty quickly. So I was well

invested. I had things all
across the technology sector,

which was great up until 1999,
come 2000 February ish, probably

things started to take the loss.
One of my assets that I invested

really heavily in and still
believe in today was wet van, I

put him Dollar After Dollar
After Dollar in the web, then

buying stock buying and buying
and buying and buying it. Now,

what Van had a great idea was
grocery delivery service, it

really was good. They had a huge
network that they had built out.

Unfortunately, they had grown
too quickly. And they couldn't

service anything. And so the the
stock round that time around

February of 2000, started
tanking and started thinking a

lot. And but what did I do?
Well, surely it's going to come

up, right? Surely it's going to
come up, it's got so much value,

it's going to come back up, it's
going to come back up. I can't

sell it because it's going to go
back up. Even when it was worth

half of what I paid for. The
writing was looking like it was

on the wall for web then it
looked like it was gonna go

belly up. I couldn't sell it
because I couldn't stand for

Deleuze. Because it was such a
good product. It was such a good

idea. And it was so well put
together. It really had

everything going for it. Except
it didn't. The market didn't buy

it. It wasn't what was valuable
at the time. It wasn't a

believed in that it was going to
be successful. But my loss

aversion was unwilling to take a
loss on web then what happened

to web ban bankruptcy now worth
zero. I've got 1000s of shares

and a company that doesn't exist
anymore called Web then that is

loss aversion. So it is the
fixation on avoidance of loss.

It's irrational. It's accounting
on it's accounting for sunk

costs is how I like to think for
it. So it's well I already put

all this money into it. And so
surely it's got to come up.

Well, those days were already
gone so I could have taken the

loss and then moved on and put
it into something that would be

more profitable, but I didn't
write so I counted on, it's just

got to come up because I can't
lose on web then. So I like to

also think of it oh, let me
write that down. Accounting

for sunk costs so that's a loss
aversion, not willing to, to

make it, to make it to take a
loss on something. endowment

bias is a little bit different.
So endowments is the feeling

it's worth more because you owe
it, own it.

So where I see this play out,
most of the time as a

syndication and fund attorney is
where you have a freshly in a

fund where they are preceding
something with assets. So the

fund is preceding it with
assets. And they have this

belief that since it, this came
in, in the beginning, this is

really the powerhouse of it.
This is what made them

successful. And they've endowed
these assets with magical

powers. They've endowed this as
the cause of their success. And

so therefore, nothing can be
done. In order to sell this. I

see this all the time. This is
the endowment bias. So it's that

feeling it's worth more or the
cause of their success, because

it's already owned, and it was
responsible for maybe their

success up until a certain
point, but then it could be a

big, negative detriment. And you
could even think of it not even

as a specific asset, but even an
asset class. So a lot of people

think, Well, I'm a multifamily
guy, because I started in

multifamily. And it's been the
cause of all my success. Well,

that's great. But there might be
other asset classes that would

be even better for you. So I
think multifamily is great. But

I think there's also a lot of
other asset classes that are

even better. Of course, deal by
deal, there are certainly going

to be multifamily assets that
are truly stellar, absolutely

solid, and they should be
invested into. But it doesn't

mean that all multifamily
products are great, because

they're not, most of them
aren't. But there are a number

that are. But there are also a
number of other asset classes

that are also great. So that's
endowment. The last one we're

going to talk about today is the
self control. Now, it's an

illusion of self control. So
this the way this mostly comes

about for syndications or in
funds is having insufficient

reserves. Reserves are necessary
to make the expenditures to

protect the investment itself to
protect the whole syndication or

the fun for whatever may come
up, of course, its reserves

right and savings to make sure
that you can cover those things

while having to do a capital
call. Well, a lot of especially

funds get that pressure to buy
more and more assets. And so

they don't want their investment
reserves to pay be too high.

They also want to buy more, and
so they lack the self control to

identify, Okay, we need to
really find the best assets and

if it's not there, maybe we do
we do a distribution, or maybe

it's something else. But for the
biggest cause that is the

biggest problem I see is
insufficient reserves. Also, if

it is this pressure to buy two
months or outside of the fit. A

fit of course is founder
investment theory, buying

outside of what you normally
would because you've got this

pool of cash, you need to spend
it, you need to grow the fund,

right? I know that pressure, I
felt it myself. It's there. And

so you get this pressure to buy
whatever it is, or even if it's

not even an fun context, you
need to put another syndication

together. You've got all these
investors who are clamoring for

it. You lack the control in
under this bias. It's that lack

of control of waiting until
there's the best asset for you.

So making the making the
investment kind of stilted,

saying, Oh, this is what we
should invest in, because you're

feeling that pressure and you
don't have the control in order

to manage it and just say, it's
just not the right time, the

assets, not there. So that's the
bias of self control. And when I

say you, I don't mean you
necessarily have that. But a lot

of us do. I certainly do. I felt
that pressure and finding the

right assets to do, fortunately,
I've been able to control it,

and I always invested in very
good things. But, you know,

maybe it is something that I
actually have to like, think

about, like when I'm
underwriting Am I doing this

because the numbers are really
there, or is something pushing

me to say, to do this, when I
just feel that pressure. So it's

a it's a natural thing, which
leads me to why we do this, why

we talk about these behavioral
economics biases, is because

there are those pressures there.
You know, we make money as

syndicators and fund managers by
buying stuff by running these

things. And so you feel a lot of
pressures. And there's a lot of

pressures there. That may shape
that underwriting, which is bad

for investors and bad for our
investment business and bad for

our syndication business.
Because it makes us invest into

things that aren't, shouldn't be
invested into. And it may make

us blind to things that are
better investments that are out

there. And so the whole point of
why we're even talking about

behavioral economics is to help
you like see what the different

things are, that are just going
beneath the surface, right? I

mean, this is all iceberg stuff,
you know, these are the things

you're aware of. But down here,
there's all this other stuff.

Behavioral

Right. So there's all this other
stuff going on, too. And that's

what needs to be combatted. So
that way, when decisions are

made, it's because all these are
all good things. So if we can

lower the water. So we can make
decisions based on more thorough

analysis of more facts. And then
there's still some things that

are always going to be here
beneath the surface. That's why

we do it. So my name is Tilden
Moschetti. I am a syndication

attorney for the Moschetti
syndication lager, we help

syndicators and fund managers
and businesses raise money by

putting their their documents
together for them, and also

offering advice and expertise in
putting those syndications funds

business capital raises together
for Regulation D, rule 506 B and

rule 506. C offerings. Of
course, I also have another hat,

which is doing my own
syndications, my own funds, and

raising money for my own
businesses. So I have expertise,

both real world just like you.
And I've been a play I've had,

I've experienced all these kinds
of behavioral economics issues

in that role. And that's one of
our unique propositions for why

we're, we're such a great firm
is that we've have the

experience and the legal
expertise, but also that real

world experience and I've been
in your shoes before, so I know

what the different pressures are
and I know what it's like to

raise money. So that's what we
do. If we can help you don't

hesitate to give us a call.