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Why Smart People Make Big Money Mistakes--and How to Correct Them: Lessons from the New Science of Behavioral Economics Hardcover – January 5, 1999
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Top Customer Reviews
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.Read more ›
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.Read more ›
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.
Most Recent Customer Reviews
Reading this book is akin to medicine that tastes foul but is health-giving. Most of us have lost money foolishly, a little or a lot. Read morePublished 16 months ago by Ricardo Mio
A good introduction to behavioral economics. Touches on pitfalls and how to avoid them. Worth re-reading once in a while to keep the lessons fresh. Read morePublished 18 months ago by Rex D
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 20 months ago by steven
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 on December 26, 2013 by Beatrice
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 morePublished on November 7, 2013 by RICHARD D STANLEY
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
This book changed how I valued my own possession and accounts, and it changed my money management behavior.
Don't buy it! Read more
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