The Psychology of Money
Understanding the many facets of the world of finance
In today’s world, there are few things we can be sure of, and markets and finance are no exception. So why do we continue to treat money and investments as though financial market rules were set in stone? The reason we see it this way is because we are human, and as such, we are governed by the norms of psychology. Understanding the psychological mechanisms that are triggered within us when we deal with money, can explain - and help us avoid - those irrational behaviours that can jeopardise both our fortunes and our happiness. In his best-seller, The Psychology of Money: Timeless Lessons on Wealth, Greed, and Happiness, Morgan Housel highlights the money triggers that we should be on the look out for.
Many useful tips to:
- Change your habits around money thanks to the understanding of the psychology that governs them.
- Understand what the real values to consider are, when you invest and save.
- Learn to recognise and limit the biases that negatively influence our financial situation.
Behind our financial decisions lies much more than mathematical rules
When it comes to money, wealth and well-being, there is an obvious paradox that stops us from understanding the reasons behind the many cases of bankruptcy we witness every day: if the financial industry is governed by scientific and mathematical rules, how is it that some people simply do not adhere to them, perhaps even going so far as to lose everything they own? The author Morgan Housel, expert in behavioural finance, has an answer: assuming that the finance industry and money markets do follow mathematical rules, we should not forget that integral to these is the human component, where irrational behaviours come into play. And as humans, we are not governed by unyielding regulations, but by the elastic and fluctuating laws of our emotions, feelings and fears: hence, money markets and finance step out of the world of science and into the sphere of psychology.
And it is in this very context that, at first glance, we find the explanation for certain unexplained events: all the decisions that an individual makes, whether they have positive or negative implications, are always based on good intentions. The point is, where do the roots of this good intention lay? It may well be a good intention arising from rational and precise calculations and planning, but more often, it is influenced by fears, anxieties and insecurities.
Without taking these factors into consideration, it will be difficult to maintain control over your financial situation: we need to understand the psychological mechanisms, the biases and the preconceptions behind the financial decisions we make, to avoid making bad choices and paying the bitter consequences.
The key ideas of "The Psychology of Money"
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