Consider a scenario of two people: each 25 years old, David who makes $40,000 a year and Michael who makes $80,000 a year. Each year, they get a 2.5% raise and both work until they are 73 (yeah, this might be the regular…
The other day, an ex-colleague asked me to point him to some trading books that would teach him to get rich. I was cracking my head for some wisdom that could help him with in his journey as trader. After a while,…
Numerous studies have shown that money makes happy up to an inflection point of between 40,000 to 70,000 USD per year. I guess that is quite obvious since with that amount of money one’s basic needs can be met (depending on where…
No, I am not referring to that 1998 action movie with Tia Carrere. More to situations where you spend a month researching the best flat screen TV, then invested twice as much money in a penny stock based solely on a hot…
This is clinging to a fact or figure that should have no bearing on your decision. Often, we use an initial value or first piece of informationa as a “starting point” in decision making. Even if the initial value was…
Or why we adhere so strongly to our beliefs. One culprit is what the rule of consistency describes: a powerful force that compels us to act in a way that is consistent with our past behavior (this rule is extensively…
A close relative to the previously mentioned Confirmation Bias, Overconfidence is the tendency to overestimate our own abilities (i.e., we aren’t as smart as we think we are). We tend to think that we are much better forecasters and estimators than we…
We let confirmation bias take control of our mind by only seeking out information from sources that agree with our pre-existing beliefs. Conversely, we tend to ignore and dismiss information (= disconfirming evidence) which tend to disprove our initial impressions. It’s the tendency to interpret the glass…
When it comes to mathematical functions, the human brain can easily comprehend “Linear Function or Simple Interest”, but we are genetically unfit to comprehend “Exponential Function or Compound Interest” and its massive impact years down the road. When it comes to interest…
Have you also observed that many people behave as if not all dollars are created equal? By assigning relative values to different moneys that in reality have the same buying power, they run the risk of being too quick to spend,…