How we treat money is surprisingly similar to how we act in romantic relationships.
That is, we tend to act irrationally with both. In this TEDx talk, psychologist Daniel Crosby points out the biases people tend to have that can sabotage our finances or love life.
It’s an eighteen minute video, but one that’s both entertaining and informative. Dr. Crosby talks about four specific psychological biases that lead us to irrational behavior:
The “I Can Change Them” (or “Fixer Upper”) bias: We tend to think we can “fix” people, when history has shown those “fixer uppers” will keep acting the same way despite our intentions. Similarly, in money, we tend to think we can beat the odds when it comes to financial decisions (ignoring warning signs when buying stocks, for example).
“This Time It’s Different” Bias: Divorce rates are much higher for second and third marriages than they are for first ones. We keep believing this time will be different—even when we don’t change what led to what went wrong in the past. When it comes to money, psychologists call this “New Era Thinking.” It’s why financial bubbles recur and why people over-value stocks (like the unprofitable eToys instead of Toys R Us).
“The Prince Charming” Bias: This is when we believe one (highly unlikely) relationship or event will sweep us off our feet and fix all our financial or romantic problems. We’re nine times more likely to be crushed by our televisions than we are to win the lottery, but because of the Prince Charming bias we buy billions in lotto tickets despite the extreme improbability of ever winning. Read More
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