Why smart people make big money mistakes–and how to correct them

Yes, I’m still on the economic book bent.
This one was well-written and entertaining. Basic premise is that we prevent ourselves from making good financial choices, by simple human pyschology. We mentally account for money differently based on source of money (i.e. you go out and think nothing of spending that birthday check on an expensive coat, but you’d never do that with your paycheck) and keep pouring cash into the car that keeps breaking down simply because we have already put so much into the car so far.
Other tricks used against us are the anchoring effect of a listed price– maybe something isn’t worth $200, but when we see it marked down from $500 to $250, we can’t resist buying it. Anchor effect also hugely impacts the final price on your house sale. Overconfidence in our own abilities to time the market or to have the inside scoop on a stock also hamper us. On the opposite side, the herd effect of “everyone’s buying it” similarly hampers effective financial decisions.


auth=Gary Belsky and Thomas Gilovich
pub=1999
sub=Lessons from the new science of behavioral economics