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Biased Brain: Thinking About Money

Posted by CFTC Staff /
Man in suit pocketing money

We all have a lot on our minds. From remembering what is on our to-do list to planning for retirement, our lives require us to make many choice in a short time. To make matters worse, research indicates that our brains aren't always our allies. Leading researchers in the field of behavioral economics are uncovering the brain biases that lead us to overspend and make financial decisions that gratify us today while putting our futures at risk.

 As investors, we aren't defenseless. Knowledge is power, and understanding how our brain works in making financial decisions gives us the ability to spot our biases and counteract them with sound decisions making. So, how can you protect yourself? I attended a launch event for "Thinking Money: The Psychology Behind Our best and Worst Financial Decisions," a documentary produced by the Financial Industry Regulatory Authority (FINRA) Investor Education Foundation. This entertaining and informative documentary brings to light emerging research on our personal biases toward short-term financial decision making. The most instructive part of the documentary is the wine tasting experiment that suggests how much our personal perception of value actually affects our experience, regardless of the actual cost. The findings certainly encouraged me to change my approach to spending. You can find a viewing schedule for the documentary on public television, request a copy, and watch a preview at: www.saveandinvest.org/FinancialBasics/ThinkingMoney.

Watching the documentary won't stop any of us from making biased financial decisions unless we put the knowledge to good use. You are already making good decisions by checking out CFTC SmartCheck and spending time learning about financial decision making. These steps, however small, give you the tools to continue your smart investing. There are other resources available on the topics of behavioral economics and financial decision making, including:

This update is provided by the Office of Consumer Outreach at the CFTC as a service to consumers. It is not a legal interpretation, endorsement, or statement of CFTC policy. The CFTC does not endorse any product, service, process, or enterprise linked to from our site. Links to other websites or enterprises are provided solely for the convenience and education of consumers. The CFTC does not assume any responsibility for the content or operation of other websites or entities.

 

 

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