Behavioral Economics2018-09-20T19:12:16+00:00

Behavioral Economics


Buy Smart, The Mental Purchasing Model in 7 Steps

This year has been full of firsts.  It was the first year we started as a family of 5, first time we moved cross country and into a new home together, first time we lived through a hurricane, and first time we re-modeled our home.  With these firsts came forth multiple opportunities to spend large sums of money. We purchased: a mini-van a new home home re-model an 11 unit rental complex 2 angel investments additional equity in HIT Capital Each one of these purchases could significantly shorten or lengthen my family’s path to financial independence. The last three may [...]

By |November 20th, 2017|Behavioral Economics, Personal Finance|0 Comments

Sitting on an Island within Hurricane Harvey

As the kids go down for a nap and the waters begin to stabilize I gather some of our thoughts over the last couple days, and the days to come. I learned of what was soon to become Hurricane Harvey from a co-worker last Tuesday, 7 days ago.  This consisted of nothing more than an awareness of a storm that was over the Yucatan.  I came home from work that day and told my wife over dinner.  Neither of us thought much of it as it didn’t come up again until we did 30 seconds of research on our phones [...]

By |August 29th, 2017|Behavioral Economics|4 Comments

The Death of Procrastination

We all put off unpleasant tasks.  In surveys 95% of all people admit to procrastinating, with about a quarter of them saying it is a chronic, defining characteristic.  Our innate human behavior is to put off less appeasing tasks regardless of importance.  I struggle at times to get out of bed, to tackle mundane tasks, or to get my workout in.  I even had an urge to delay writing the article you’re reading today. It’s unfortunate the consequences or benefits of procrastination are many times unknown.  Fortunately, in the investing world, the numbers paint a clear picture.  For instance, if [...]

By |June 12th, 2017|Behavioral Economics, Personal Finance|19 Comments

The Problem with Thinking Fast

A burger and a slice of cheese together cost $1.10. The burger costs a dollar more than the cheese. How much does the cheese cost? (It’s more impactful if you answer how much the cheese costs before continuing on) Your answer to the cost of cheese may have depended on which psychological mode of thinking you engaged in. If you chose to answer quickly, your answer was likely 10¢, but if you stopped and worked the answer meticulously then you should have come up with the correct answer of 5¢. For those interested, here’s the algebra: $1.10 = Cheeseburger Cost [...]

By |March 16th, 2017|Behavioral Economics|1 Comment

Home Bias, Is It Time to Take a Global Look

We have many behavioral biases and the latest data shows that “home bias” is one of them. Home bias is where we invest more of our assets in the country and community we live rather than globally. Becoming aware of our biases, including our home bias, enables us to make more rational personal finance and investing decisions. The IMF (International Monetary Fund) and MSCI All World Index gathered data from the five largest countries by market size. All five demonstrated a significant home country bias, rather than a global market cap weighted allocation. Data as of December 31, 2015 [...]

By |December 27th, 2016|Behavioral Economics|0 Comments

15 Examples of Loss Aversion

Loss aversion refers to our tendency to strongly prefer avoiding losses over acquiring gains. This behavior is at work when we make choices that include both the possibility of a loss or gain. For example, when making investment decisions we most often focus on the risks associated with the investment rather than the potential gains. The loss aversion bias is not always dreadful to have, as in many cases it is beneficial to our way of life. Naturally responding more powerfully to threats than to opportunities is a clear example of our innate survival instinct. A benefit of loss aversion [...]

By |August 16th, 2016|Behavioral Economics|2 Comments