Mind your biases from "summary" of The Dumb Things Smart People Do with Their Money by Jill Schlesinger
Our brains are incredible machines, capable of processing vast amounts of information in a short amount of time. But they are also flawed, prone to biases that can lead us astray when it comes to making decisions about money. One of the most common biases we face is confirmation bias, the tendency to seek out information that confirms our existing beliefs while ignoring evidence that contradicts them. This can lead us to make poor financial choices based on faulty assumptions. Another common bias is overconfidence, the belief that we are smarter or luckier than the average person when it comes to investing or other financial matters. This can lead us to take on too much risk in our portfolios, leading to potentially disastrous consequences if the market turns against us. Then there is anchoring bias, the tendency to rely too heavily on the first piece of information we receive when making decisions. This can lead us to make poor choices based on outdated or irrelevant information, rather than taking into account all the available data. Familiarity bias is another common pitfall, the tendency to prefer investments or financial products that are familiar to us, even if they are not the best choice for our financial goals. This can lead us to miss out on potentially lucrative opportunities because we are unwilling to step outside our comfort zone. And finally, there is loss aversion, the tendency to feel the pain of losses more acutely than the pleasure of gains. This can lead us to make irrational decisions based on our fear of losing money, rather than focusing on our long-term financial goals. By being aware of these biases and actively working to counteract them, we can make better financial decisions and avoid some of the dumb things that smart people do with their money. It's not easy to overcome our natural tendencies, but by taking a step back and questioning our assumptions, we can start to make more rational choices that will help us achieve our financial goals in the long run.
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