Comments on: Why do people make stupid money decisions?

By: Presh Talwalkar

Presh Talwalkar — Tue, 04 Nov 2008 10:55:46 +0000

Mike:
Thanks for the book recommendation. Yes, hyperbolic discounting seems like a great explanation.

It might explain why weddings cost so much. My friend observed that many women have been dreaming of their wedding day but don’t plan much farther ahead. So their spending preference would likely exhibit hyperbolic discounting.

By: Mike

Mike — Sat, 01 Nov 2008 01:17:04 +0000

A great book that explores how human (and animal) behaviors are irrational (temporally inconsistent) is Ainslee’s Breakdown of Will. Apparently, while rational behavior would be explained by exponential discounting — and thus keep decisions consistent over time — experimentation has shown behaviors follow a hyperbolic discount. This means that once a reward approaches, its immediate value overshadows what would be the higher payoff behavior by being more prudent. Ainslee shows how this inconsistency can explain a wide variety of irrational behavior, including addiction.

By: Presh Talwalkar

Presh Talwalkar — Thu, 30 Oct 2008 20:42:14 +0000

Norm:
We do tend to place responsibility on others instead of ourselves–part of the reason I try to avoid worrying about what others are doing

Ceres:
Thanks for the book reference. It looks interesting. Behavioral economics fascinates me because it seeks the causes of why we are systematically biased. This is very useful because companies will try to exploit these things. We have to guard ourselves.

Mark W.:
Good summary of the major money mistakes. Laziness and conformity are strong forces. Often people will make the wrong decision just so they don’t stand out! Something is good about having carefully picked eccentricities and individualism.

Pat:
This sounds like a good question to develop in detail in another post! I’ll see what I can gather.

By: Pat

Pat — Thu, 30 Oct 2008 17:15:59 +0000

I agree that we need tricks. With that said, can anyone offer some tricks they have been able to successfully use on themselves to motivate themselves, stay on course, et cetera?

By: Mark W.

Mark W. — Thu, 30 Oct 2008 17:09:30 +0000

I’ve made my share of ‘stupid’ money (and other) decisions in the past. I do my best to learn from them and move on (hopefully not to repeat the same mistake!). Why do people make ‘stupid’ money decisions? I’m sure the reasons are many but what comes to mind are lazy (lack of or little research), rebel (I want it my way – so there mentality), the crowd mentality (everyone else is doing it that way), and I know better than anyone what is right for me. Also I think we need to experience the other side of the coin (pun intended) sometimes just so we can have that experience.
P.S. – I like your image above for this post!