Behavioral Economics is the study of the effects of psychological, cognitive, emotional, cultural, and social factors on the decisions of individuals and institutions and how those decisions vary from those implied by classical economic theory.
Behaving "well" as an investor is important; the less emotion, the better. Having a trusted financial advisor at One Day In July will help you stay on an objective, well-reasoned course when considering your investment plan.
Behavioral economics combines psychology and microeconomics to explore how individual consumers and producers make their decisions.
There are two central problems with trying to forecast stock market movements: Investors don't know tomorrow's news, and investors don't know how the market is going to react to tomorrow's news.
Financial Sludge: Insurance and financial companies deliberately making the process of transferring outbound funds as time consuming and uncomfortable as possible.
Loss aversion demonstrated that for most people, the negative feelings generated from incurring a loss outweigh the positive feelings generated from realizing an equal-sized gain.
The financial industry has a knack for creating inertia through complexity. Inertia transfers wealth from the average investor to Wall Street.
While almost anyone can get into a car and drive, not everyone can do it well. The same principles apply to investing.
Sunk cost refers to an unrecoverable expenditure. The expenditure is most often time, money, effort, or emotion.
Too frequently, investors aim for above-average returns (e.g., active investing or stock picking) and end up with sub-par returns, missing out on the average market return.
Transitioning from the workforce to retirement can be a financially stressful time. Prior to this transition, it's a good time to take a close look at your investment risk, and obtain a solid understanding of your personal cash flows.
We would like to believe that economic decision making is based solely on rational thinking. However, it has been found that up to 70% of economic decision making is emotional and only 30% is rational.1
Maximizing the Emotional Economy: Behavioral Economics, Gallup, Gallup.com
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