Behavioral Finance: Learning How to Get Out of Your Own Way and Buy Happiness

Send us Fan MailFinancial Advisor, Stefanie Pickard, discusses Behavioral Finance, and how awareness of human tendencies relating to financial decisions can help you work towards financial freedom and risk-reward balance with investments.Behavioral finance is the study of observed investor and market behaviors. It focuses on the idea that people don’t always make rational financial decisions, however this irrationality is predictable and normal.Behavioral biases and cognitive errors can be developed from a multitude of different factors, such as past life experiences, general temperament, gender, age, and relationship status.Examples of types of behavioral biases include: loss aversion, overconfidence, status quo, cognitive dissonance, mental accounting, and sunk-cost effect. These biases are explained in further detail in the podcast. Understanding these biases and using them to your advantage is important not only for financial freedom, but to “buy happiness”. You can use these biases to plan life experiences that will bring joy and memories, to donate and give to others in a meaningful way, and to utilize your money in a useful and impactful manner.