Often, our attitudes (perceptions) affect our behavior. And we may have biases in forming these perceptions. Indeed, this runs across many product categories. With this in mind, let us look at how cognitive biases affect our finances.

Also, take a look at these related posts:


A Look at How Cognitive Biases Affect Our Finances

The post was written by Jeff Smith of Self Lender.

A cognitive bias is an error in thinking that affects our ability to make decisions. We often think we know best. And thus, we reject sage advice and rational reasoning. In the financial world, cognitive biases are especially dangerous. As they can drain savings accounts, tank credit, and worsen debt.

Cognitive biases can even cause us to make poor investment choices, like those in a recent survey who continued to invest money into a project even after receiving advice that it was no longer wise. As investor and economist Benjamin Graham wisely said, “The investor’s chief problem — and even his worst enemy — is likely to be himself.”

With so much room for cognitive error, it’s no wonder that 7 in 10 Americans admit to postponing making major financial decisions. Fortunately, some of the most common cognitive biases are also the most easily recognizable. Once you start recognizing these biases as they come up in your own life, you can tweak your mindset to put you back on the path to optimal financial health.

This infographic from Self Lender outlines 12 major financial cognitive biases and provides tips on how to overcome them.

Cognitive Biases Affect Our Finances

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.