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…
Endowment Effect is the tendency to fall in love with what we own and makes us resist change. Or in other words, this is the tendency to consider something you own to be worth more than it would be, if you didn’t…
This is the tendency to avoid taking an action due to the fear that—in hindsight—it will turn out to have been less than optimal. Like leaving money in a bank account, rather than putting the cash in an investment with…
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,…
Irrationally wanting things to stay the same, also called inertia. We do this in part because we want to avoid costs, even when they’re offset by a larger gain, a process psychologists call “Loss aversion”. You hold onto a mutual fund…