"Knowing is not enough ; we must translate knowledge into action "
Humans make financial decisions based on emotions & not with logic , overcoming such emotions requires conscious effort and self-awareness.
Prof. Daniel Kahneman was legend in behavioural economy. Particularly worked hard in money behavioural pattern of with respect to humen emotions. Before Kahneman's research, people thought that when it came to money, we all made logical choices like robots. But Kahneman showed that humans are much more complicated. We're influenced by emotions and biases that affect how we handle money.His most famous idea, called prospect theory, explains how we see gains and losses. We feel the pain of losing money more than the joy of gaining it. This makes us cautious when it comes to protecting our money but willing to take big risks to try to make up for losses.
All i want to know is where i am going to die so that i never go there" --- Charlie Munger
That's why some people hold onto losing investments for too long or take risky bets to try to recover what they've lost.Kahneman also found that we have cognitive biases that mess with our thinking. For example, we tend to be too confident in our abilities, which can lead us to make bad investment choices. We also get stuck on irrelevant details, like the price we paid for a stock, which makes it hard to make smart decisions.Understanding these biases can help us make better financial choices. But it's not easy. Kahneman himself said that just reading his book won't make us better decision-makers. It takes effort to recognize our biases and find ways to work around them.
At last Kahneman's research showed that humans make financial decisions based on emotions and biases, not just logic. Understanding these biases can help us make better choices, but overcoming them requires conscious effort and self-awareness.
When Money realizes that it is in good hands , it want to stay & multiply in those hands."
Originally published 6 April 2024