Six ways our brains make bad financial decisions

We all do it: hold on to a stock when every indicator screams sell, or spend our entire bonus on a new car instead of paying off debt. A whole new area of science called behavioural economics, or BE – a blend of psychology, economics, finance and sociology – has sprung up to explain why. According to BE pioneer and Duke University professor Dan Ariely (author of the bestseller Predictably Irrational) and Rotman School of Management researcher Nina Mazar, our brains are hard-wired to choose short-term payoff over long-term gain. Here are six common mistakes investors make – and how to avoid them.

Topics covered in the article: saving, retirement planning, insurance, shopping, mortgages.
[source: The Globe and Mail]

Six ways our brains make bad financial decisions

We all do it: hold on to a stock when every indicator screams sell, or spend our entire bonus on a new car instead of paying off debt. A whole new area of science called behavioural economics, or BE – a blend of psychology, economics, finance and sociology – has sprung up to explain why. According to BE pioneer and Duke University professor Dan Ariely (author of the bestseller Predictably Irrational) and Rotman School of Management researcher Nina Mazar, our brains are hard-wired to choose short-term payoff over long-term gain. Here are six common mistakes investors make – and how to avoid them.

Topics covered in the article: saving, retirement planning, insurance, shopping, mortgages.

[source: The Globe and Mail]