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Why Smart People Make Big Money Mistakes And How To Correct Them [Kindle Edition]

Thomas Gilovich , Gary Belsky
4.4 out of 5 stars  See all reviews (58 customer reviews)

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Book Description

Why do so many otherwise smart people make foolish financial choices? Why do investors sell stocks just before they skyrocket -- and cling to others as they plummer? Why do shoppers overspend when using credit cards rather than cash? What do our habits of tipping or buying lottery tickets indicate about our relationship with money?

In this fascinating investigation of the ways we spend, invest, save, borrow, and waste money, Gary Belsky and Thomas Gilovich reveal the psychological causes -- the patterns of thinking and decision making -- of irrational behavior. Most important, they focus on the decisions we make every day and, using entertaining examples, provide invaluable tips on avoiding the financial faux pas that can cost thousands of dollars each year.

Editorial Reviews Review

Why do so many otherwise rational individuals make irrational decisions when it comes to money? Financial journalist Gary Belsky and Cornell University psychology professor Thomas Gilovich contend the answers can be found--and the deficiencies remedied--with help from a relatively new science called behavioral economics. Still largely unknown outside academic circles, the field can be traced to research on the impact of rewards and punishments on human judgment and decision- making that first were undertaken at Jerusalem's Hebrew University some 30 years ago. In Why Smart People Make Big Money Mistakes , Belsky and Gilovich update this pioneering work and show readers how to understand exactly why they invest, spend, and save as they do. More importantly, using examples that everyone can identify with and language that anyone can understand, the authors offer dozens of workable suggestions that can help readers manage their money better. "We believe that by identifying the psychological causes behind many types of financial decisions," they write, "you can effectively change your behavior in ways that will ultimately put more money in your pocket and help you keep more of what you already have." --Howard Rothman


"This very helpful book is aimed at the novice and the expert, and you come away from it somewhat chastened by your own financial mistakes, but hopeful that you might learn a thing or two about holding onto your hard-earned cash. The authors don't offer simplistic solutions, but hard facts and sound advice."

--Robert J. Hughes, SmartMoney

Product Details

  • File Size: 1913 KB
  • Print Length: 224 pages
  • Page Numbers Source ISBN: 0684844931
  • Publisher: Simon & Schuster (March 9, 2001)
  • Language: English
  • ASIN: B000FC0WTC
  • Text-to-Speech: Enabled
  • X-Ray:
  • Word Wise: Not Enabled
  • Lending: Not Enabled
  • Amazon Best Sellers Rank: #868,322 Paid in Kindle Store (See Top 100 Paid in Kindle Store)
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Customer Reviews

Most Helpful Customer Reviews
131 of 136 people found the following review helpful
5.0 out of 5 stars Nonrational Economics Explained May 11, 2000
Format:Hardcover|Verified Purchase
People don't act like computers when making economic decisions. This book is full of examples that show why people make miseconomic decisions. The basic point is that we have rules of thumb learned in daily life that we apply to economic decisions, and the results are costly.
This book reminds me of Robert Cialdini's excellent book, Influence, that explains the psychological biases that harm us as consumers and how to protect ourselves against unethical sellers. If you read and apply them both, you will have much more prosperity in your life.
Here are some examples: We are all more careful about saving money in some areas than in others. For instance, I'll go to great lengths to save money on air travel, but frequently buy expensive wines in restaurants (not a great value).
Most of us are more concerned about avoiding losses than in making gains. This often translates into holding stocks with losses, rather than selling them, even if there is not much chance of a rebound. I know I'm guilty of this.
Another example is assuming that we have knowledge that we really don't have. Someone who is good in math may not take the time to mathematically evaluate the choices. For instance, a 15 year mortage on your home is only a little more costly per month than a 30 year mortgage. The different in the cost of the total interest you pay is enormous, yet almost everyone gets a 30 year mortgage. Almost everyone has the skill to compare the two choices, but few take the time to do so. This kind of stalled thinking can be irresistible, and your wallet will inevitably be lighter as a result.
When you discover that you have a weakness in one of these areas, you can then be more cautious in avoiding your biases in the future.
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86 of 90 people found the following review helpful
4.0 out of 5 stars Behavioral Economics Explained Quite Well April 30, 2003
I have a Ph.D. in economics and a bachelor's degree in psychology. I've always found the fields of behavioral economics and experimental economics rather fascinating and wished to know more about the results of their research. So when I was shopping for a retirement investment guide recently I saw this book in the personal finance section and purchased it as well.
As a primer on the basic findings of behavioral economics, this book is great -- interesting, well-explained, and much more fun to read than pouring through academic journals. It's quite interesting to see that how we make money decisions is based as much on psychological principles (namely loss aversion, sunk costs and framing of the gain or loss) as on a rational calculation of cost and benefits. Also explained somewhat here are money mistakes that people make not because of emotional tainting of financial decisions but simply because they draw incorrect conclusions from incomplete calculations, such as not correcting for inflation in the housing market, not calculating total interest payments over the terms of different loans, not realizing the power of compound interest.
While it's a great book to explain certain irrational behaviors of your own and to explain a few financial chestnuts such as ignoring the financial pages, this book is not really an investment guide and is thin on suggestions for changing irrational behavior (other than realizing what you are doing will make you less likely to repeat the same mistakes).
I would disagree with some reviewers who suggested that the book is insulting to their financial acumen.
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57 of 59 people found the following review helpful
4.0 out of 5 stars lightweight but overall pretty decent April 16, 2001
I'm a little amazed at the reviews on this book. It isn't nearly as good as most of the glowing five star reviews make it out to be. It is a fluffy book of around 200 pages that I read in a single day. It has maybe 10 main irrational behavior we exhibit when it comes to money. Even though it was only 200 pages I couldn't help but feel that it could have been edited down substantially.
On other hand, I'm even more amazed at the negative reviews. I'm not sure what the reviewers were expecting or whether they even read the same book I did. The book doesn't attempt to explain everything. In the introduction it clearly explains that this is an attempt at a popular airing of some of the main findings of behavioral economics. Certainly there are some things you already knew, like our tendency to follow the herd or be paralyzed by indecision when faced with too many choices. But there are also things you might not have known, like how easily we "anchor" on completely random numbers.
I wouldn't have paid $20 for a hardcover copy of this book; I checked it out from the library. And I don't begrudge the time I spent reading it because I learned something. And that's really all you're supposed to get from this little book.
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39 of 41 people found the following review helpful
WHY SMART PEOPLE MAKE BIG MONEY MISTAKES is full of examples of decisions you might have to make. You get to choose an option, and then the authors tell you what you should have chosen. This is a great learning technique to bring home the lessons of this superb book. The authors point out several biases that most people have about money (such as it's okay to blow certain money, but not other money -- all money is really the same), themselves (people always overrate their abilities and get taken as a result), and circumstances (even people who got an A in statistics will usually misanalyze the risks they take). Since money is ultimately about math, a lot of your lifetime income and earning potential is lost in the process of following these biases. This book could make or save you a million dollars. You cannot afford not to read it. I was reminded of a parallel book on the same sorts of problems about bad thinking habits as they apply to work situations called "The 2,000 Percent Solution" which you should also read. If you use the lessons of both books, you will be enormously better off financially in your lifetime. It'll be like owning the casino, instead of losing money in it. Good luck!
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Most Recent Customer Reviews
4.0 out of 5 stars ... years old and is still a very insightful and useful.
This book is 15 years old and is still a very insightful and useful.
Published 29 days ago by vap
2.0 out of 5 stars I expected more
Took away very little from this book. Didn't find anything in this book that would cause me to modify my behavior regarding financial decisions.
Published 1 month ago by steven
5.0 out of 5 stars Very useful handboom
This book is very useful and easy to read for the practitioner and the academician. As the title implies, even the smartest people can make money mistakes.
Published 13 months ago by Beatrice
4.0 out of 5 stars Manage your "humanity". Improve you investing results.
Gary Belsky exposes the real reasons why so many people lose the "investment game". Find out how and why your human behavior is your biggest threat to your investment... Read more
Published 15 months ago by RICHARD D STANLEY
5.0 out of 5 stars If you're interested in money and how your approach to money can...
I came to this book by way of recommendation from Ramit Sethi.

If you haven't read Ramit's book, I Will Teach You To Be Rich, go read it. Then come back here. Read more
Published on November 13, 2012 by akp23
5.0 out of 5 stars Lives Up To Title
This book changed how I valued my own possession and accounts, and it changed my money management behavior.

Don't buy it! Read more
Published on December 17, 2011 by Judah
4.0 out of 5 stars Good enough to require an index
This book is good enough to require an index, which it lacks. Someone was asleep at the switch.
Published on September 26, 2010 by G. Shadduck
5.0 out of 5 stars Excellent advice on money and life in general
This book was written over a decade ago but the authors' points are applicable to anyone at any time. Read more
Published on January 15, 2010 by Houman Tamaddon
5.0 out of 5 stars must read
One of the best books I have ever read. Very authentic and lucid.It has helped me clarify my financial decision making. Dr Anil Yadav, Delhi,India.
Published on December 29, 2009 by Amazon Customer
5.0 out of 5 stars Everyone made at least one of the Big Money Mistakes
When it comes to money we do strange things that are not logical at all. For example, how many times did we hear somebody paying over 20% of interest on a credit card debt and at... Read more
Published on August 12, 2009 by Mariusz Skonieczny
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