Lessons From Dune Part II That Are Relevant In the World of Finance.

Unless you have been living under a rock, you would have likely encountered a barrage of memes inspired by the 2024 release of Dune Part II, which hit theatres worldwide on March 1st.

Warning:?Before reading on, be forewarned that what follows contains potential spoilers for both Dune Part I and Dune Part II. Proceed at your own risk.

Apart from their epic scope and stunning visuals, what struck me most about these films was the abundance of behavioural finance cognitive biases woven into the narrative.

Behavioural finance delves into how psychology influences investor behaviour, shedding light on why we sometimes make irrational financial decisions.

Take Stilgar, for instance, a character who embodies the classic Confirmation Bias. Once a trusted ally of Paul Atreides, Stilgar later succumbs to religious fervour, convinced that Paul is the prophesied Lisan Al Ghaib, a messianic figure amongst the Fremen.

Every single action that Paul made was deemed to be evidenced by Stilgar, that Paul was the Lisan Al Ghaib, from defeating Jamis in combat to riding on a sandworm. And even when Paul explained that the reason his mother survived drinking the Water of Life was because of her Bene Gesserit training and not evidence that he was their Messiah, Stilgar still reasoned that this humility by Paul was yet another reason confirming Paul to be the Lisan Al Ghaib.

In Behavioural Finance, confirmation Bias mirrors this behaviour, where individuals seek information that validates their preconceptions while disregarding contradictory evidence. This may lead a fund manager to seek evidence that justifies a specific trading strategy while ignoring other data points contradicting his view.?

In Dune Part I, Leto Atreides falls prey to Overconfidence Bias. Entrusted by the Emperor with the planet Arrakis, Leto's hubris blinds him to the dangers ahead despite knowing that the Emperor's gift is, in fact, a terrible trap. His unwavering faith in his troops and abilities to negotiate with the Fremen is a cautionary tale of overestimating one's abilities—a common pitfall in financial markets where traders may overestimate their skills and make rash decisions.

Conversely, the Emperor and the Harkonnen exploited Survivorship Bias to maintain their grip on power. By eradicating every single member of House Atreides, they eliminate any evidence of their treachery, skewing perceptions of their success and preventing an uprising by the other Great Houses in the Landsraad —a parallel to how investment performance can appear more favourable when failed ventures are conveniently overlooked.

In Arrakis, the Northern Fremen, who initially doubted the mythology of the Lisan Al Ghaib prophecy, later succumbed to Herd Behavior, unthinkingly following the Southern Fremen into believing that Paul was their saviour. Only Chani dares to break free from this collective mindset.?

Finally, the Bene Gesserit exhibit Anchoring Bias, clinging to an outdated 10,000-year eugenics belief despite mounting evidence to the contrary. Mother Gaius's fixation that the Kwisatz Haderach will only come one generation later blinds her and the sisterhood to the emergence of Paul as the chosen one, underscoring the danger of anchoring oneself to past convictions.

Dune?serves as a cautionary tale against charismatic leaders, while behavioural finance warns investors against unquestioningly adhering to biases. Just as characters in the?Dune?universe must confront their cognitive pitfalls, investors must remain vigilant against the allure of biased thinking, recognising when to cut losses and adapt to new information.

While?Dune?may be a work of science fiction, its lessons on human behaviour and decision-making are eerily relevant in the world of finance.