Thinking, Fast and Slow. 32 Keeping Score

Following the schedule of our Reading Calendar

Money is important but not per se but because of its role as a proxy for feelings of accomplishment. Behavior in real humans is not dictated by rational calculations of gains and loses but for the pursue of emotional satisfaction. And emotions have their particularities and are sometimes coincident with the mythical rational man and sometimes not.

In this chapter we read about some psychological traits that are everywhere and which are very relevant in everyday life and that are quite well known. We are talking about the “sunken cost” effect that prevents you from stop loosing time and money in bad projects. We have the “disposition effect” that forces you to sell good performing investments and retain the losers. We have an asymmetry about the regret we feel when our actions had bad consequences in opposition to how we feel when our omissions had bad consequences. We don’t feel so much pain when we are bad after following the norm compared to what we feel when we are bad after braking the norm.

That’s how we are and if it is difficult to overcome this feelings oneself, to try to fight them in the people around when discussing joint actions that affect you is impossible. And that brings us to the interesting discussion that closes the chapter. These all are biases that decrease our overall practical and financial success. Sometimes they can seriously damage our health and life expectancy (we are over medicated and over treated because of this biases). However, it may be simply impossible to fight them. We hate losing money in a transaction in the same way that we like sugar. It is something physiological. You can’t help it. Maybe you just have to accept it and try to optimize your emotional well-being even knowing that you are harming your portfolio, wealth and health.

And that reminds me that I have always defended it as the most important argument in favor of having kids: it is what everybody does. If when you are old you discover that you made a mistake doing what everybody does, you are going to overcome it and be quite happy nevertheless. However, if your mistake was going against the norm, you are going to suffer strongly.

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