We Are Not Rational About Money
Behavioral economics has conclusively shown that we are emotional, biased, and deeply irrational about money. Understanding these biases is the first step to overcoming them.
Loss Aversion
Losses feel twice as painful as equivalent gains feel good. This causes investors to sell winners too early and hold losers too long.
Present Bias
We prefer immediate rewards over future ones — even when the future reward is objectively much larger. This is why we spend instead of saving.
The Comparison Trap
Measuring our situation against others drives financially destructive behavior. The antidote is measuring progress against your own goals, not others visible consumption.
Overconfidence
Most people believe they are above-average investors — a statistical impossibility. In investing, this leads to excessive trading and poor diversification.