Psychological Threats to Wealth

March 2nd, 2017

Psychologists have identified habitual human psychological flaws that threaten financial well-being, says the Telegraph. It listed eight common weaknesses including ‘anchoring’ on a price in which things including investments are judged cheap or dear, even if this anchor price is not a good yardstick. One that affects almost everyone is ‘loss aversion’, being more concerned about losing money than making a gain. On the other hand, many investors become gamblers through over-confidence and believing in lucky streaks. And ‘confirmation bias’ – unconsciously looking only for evidence that supports your opinion rather than being even-handed – is the reason why shares and even whole markets can reach ‘bubble’ valuations. Experts advise getting out of your own ‘echo chamber’ and discussing investment with family or friends. They also recommend writing down the reasons for your decisions.