Learn more about moneyandinvestments with this collection
How to make rational decisions
The role of biases in decision-making
The impact of social norms on decision-making
The value of understanding behavioural finance
Behavioural finance can give us insight into how financial decisions are influenced by emotion around things like investments, payments, risk, and personal debt.
Understanding how people can deviate from rational expectations can help us make better and more rational decisions.
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Behavioural finance
Behavioural finance is a subfield of behavioural economics. It argues that when people make financial decisions like investing, they are not nearly as rational as traditional finance theory predicts.
Mainstream theory make assumptions in its models that people are rational and free from emo...
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Losses versus significance of gains
An example of irrational behaviour:
Offer someone a choice of
- a sure $50 or,
- on the flip of a coin, the possibility of winning $100 or winning nothing.
Chances are people will choose the sure $50.
But offer a choice of
- a sure ...
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The herd instinct
The herd instinct. People tend to imitate others. Investors may fear that others know more or have more information and will tend to do what others are doing.
Behaviour finance has also found that investors tend to rely on judgments derived from small samples of data or sin...
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Key Takeaways
- Money is not just a tool for buying things, it also shapes our emotions & attitudes in ways that can be both positive and negative.
- The way we think about money is often irrational & influenced by emotions, which can lead to poor financial decisions.
- The role of luck in finan...
What Is Metacognition
Metacognition is a fancy word for what we all know and do hundreds of times each day. Ever tried to focus your attention? Attempted to regulate an emotion? Felt distracted and made the decision to put away your phone? Each is an example of recognizing a mental state and trying to control ...
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