Seven More Ways to Fool Yourself Into Good Financial Decisions
Being boring has its advantages, behavioral economists say.
Newbies investing money for the first time and people on tight budgets can be illogical about money, but so can those with loads of cash in the bank. “You aren’t insulated from human nature because of a high salary,” says Katy Milkman, a professor at the University of Pennsylvania’s Wharton School and author of the forthcoming How to Change: The Science of Getting From Where You Are to Where You Want to Be. You are, however, able to use behavioral economics to make better financial decisions. I covered seven basic tricks in this article. Here are seven more:
Conduct a “premortem.” To fight overoptimism, imagine that the big investment you’re excited about has already failed. Write down why, in detail. “I suddenly ideate reasons why it had to turn out that way,” says Torben Emmerling, a behavioral scientist and managing partner at Affective Advisory in Zurich. “It’s so simple, no? But people don’t do it.”