Why Our Brains Are Wired to Make Bad Financial Decisions
The Psychology of Bad Financial Decisions: How Our Brains Lead Us Astray
We’ve all made financial decisions that we regret in hindsight. Maybe you bought a car that was beyond your means, invested in a company that went bankrupt, or spent too much money on a vacation. It’s easy to beat yourself up for these mistakes, but the truth is, our brains are wired to make bad financial decisions. In this post, we’ll explore the underlying mechanisms that cause us to make snap judgments, overestimate our abilities, and fall prey to cognitive biases that can lead us astray.
The Evolutionary Roots of Decision-Making Biases:
Our brains have evolved over millions of years to help us survive and thrive in a world that was much different from the one we live in today. In the past, our ancestors had to make quick decisions about whether to fight or flee, hunt or gather, and mate or not. These decisions were often a matter of life or death, so our brains developed shortcuts to help us make them quickly and efficiently.
Unfortunately, these shortcuts can lead to bad financial decisions in modern times. For example, our brains are wired to value immediate rewards over delayed rewards, which can lead us to make…
