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We often make irrational financial choices from "summary" of A psicologia financeira by Morgan Housel
Our brains are not wired to be perfect when it comes to making financial decisions. In fact, we often make choices that go against our best interests. This is because our decisions are influenced by a variety of psychological factors that can lead us astray. One of the main reasons for our irrational financial choices is the presence of cognitive biases. These biases are mental shortcuts that our brains take in order to process information quickly. However, these shortcuts can often result in errors in judgment. For example, we may suffer from confirmation bias, where we seek out information that confirms our existing beliefs and ignore anything that contradicts them. Another factor that contributes to our irrational financial decisions is our emotions. When we are feeling anxious, fearful, or greedy, we are more likely to make impulsive choices that may not be in our best financial interests. This emotional bias can cause us to buy high and sell low, rather than following a rational investment strategy. Furthermore, our tendency to rely on heuristics, or mental rules of thumb, can lead us to make financial decisions that may not be based on sound reasoning. For example, we may fall victim to the availability heuristic, where we make choices based on information that is readily available to us, rather than considering all relevant data.- The combination of cognitive biases, emotions, and heuristics can result in a perfect storm of irrational financial decision-making. It is crucial to be aware of these psychological factors and strive to overcome them in order to make more rational choices that will benefit our long-term financial well-being.
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