BEHAVIORAL FINANCE

DARE TO BE DULL!

BEHAVIORAL FINANCE

Below is a brief summary of Behavioral Finance

Economists view the goal of investing as maximizing economic wealth. Yet behavioral finance shows investors are maximizing their feelings and achieving sup-optimal economic gains.

Heuristic biases are mental shortcuts that cause us to make systematic mistakes. Even after we make these mistakes, we are usually not aware of them and continue to systematically make them.

Examples of these biases include:

Overconfidence in ourselves or expert advisors.

Status Quo - aversion to change

Data Mining - looking only for data to confirm your approach.

Anchoring - mentally locking in a price even though it is now irrelevant.

We often do not realize our mental models have led us to flawed designs. An analogy can be seen by these two boats which are designed dramatically differently.

Wall Street Model

Maximizes emotional Utility while lowering economic Gain.

An estimated 90% of money is professionally and actively managed using "award winning research" and proprietary models to outperform when they are mathematically destined to perform below average, after costs. This design is emotionally superior but is mathematically flawed from a wealth building perspective.

Dare to be Dullsm Model

(I apologize for my lack of skills as a graphics artist)

Maximizes economic gain, but at an emotional cost.

Simple and efficient investments maximizing the risk adjusted return through understanding our behavioral characteristics and simple mathematical techniques. It is emotionally unappealing but mathematically superior from a wealth building perspective.

Do you want to learn more about your behavioral finance characteristics? If so, please click below:

Behavioral Finance Questionnaire

WEALTH LOGIC, LLC

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email: ar@daretobedull.com