FREE NEWSLETTER

Instincts

WE CAN THINK OF OUR brains as having two parts. There’s the fast-moving, instinctual part that tells us to pull our hand away from the hot stove, even before we’re fully aware of what’s happening. Then there’s the slower-moving, more ponderous part that tries to override our instincts by, say, persuading us to spend less, eat healthily and go to the gym.

Most of the time, our instincts are in the driver’s seat—and that’s a good thing. Throughout the day, we make countless complicated decisions, and we make them quickly and effortlessly. Our choices may not be ideal, but they’re usually pretty good.

This, alas, isn’t true of financial decisions, where our instinctual reactions often lead us astray. Consider a handful of examples:

  • We favor things that are popular—which might help when picking a restaurant, but can cause us to buy investments that are overpriced.
  • We search for patterns—which can be a big help when analyzing customer data at work, but can cause us to read too much into the stock market’s erratic movements.
  • We’re fearful of losses—which might help us avoid physical danger, but can hurt our investment results, causing us to shy away from stocks, especially during market downturns.
  • We believe hard work leads to success—which may be true for our career, but can lead us to trade too much and seek out market-beating investments. Result: We incur high investment costs, making it even more likely we’ll lag behind the market.
  • We’re inclined to consume whenever we can—almost never a good response, but especially damaging to our financial future, because it causes us to spend too much today and save too little for retirement.

What to do? When faced with financial issues, often the best response is to hit the pause button—and wait a few days or even weeks, so we give the contemplative side of our brains a chance to wrestle with the instinctual side.

Next: Future Self

Previous: Control

Article: Me Fighting Me

Subscribe
Notify of
0 Comments
Newest
Oldest Most Voted
Inline Feedbacks
View all comments

Free Newsletter

SHARE