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Speaker 1: Welcome to How the Money. I'm Joel and I and

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Speaker 1: Matt and today we're discussing the weird science behind your

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Speaker 1: irrational money decisions. So we just chose weird science because

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Speaker 1: we thought that was a fun term. Did you ever

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Speaker 1: watch the actual movie from from the eighties, Weird Science.

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Speaker 1: It's been a long time, but John Hughes, it's a classic. Man.

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Speaker 1: It reminds me of all those classic eighties and nineties movies,

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Speaker 1: most notably Breakfast Club. I think that's all I can name. Actually,

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Speaker 1: they don't make them like they used to. That's all

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Speaker 1: I know. Like, they don't make comedies like that anymore. Yeah,

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Speaker 1: so we are getting a little nerdy with it. We're

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Speaker 1: talking about behavioral science. Within this episode, we're talking about

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Speaker 1: the forces that caused us to do the things that

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Speaker 1: we do with our money. I'm looking forward to this episode, Joe,

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Speaker 1: But first I wanted to share with you that I

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Speaker 1: am fully optimized when it comes to the credit cards

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Speaker 1: that I now carry my wallet. I started down this

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Speaker 1: optimization path, I guess a few months ago, because we

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Speaker 1: were talking about the different cards that we carry in

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Speaker 1: our wallet. There's actually an article up on the site

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Speaker 1: that we've updated to reflect what I'm about to say.

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Speaker 1: But at the time I was only rolling with two

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Speaker 1: credit cards basically, right the Blue Cash Preferred, which I

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Speaker 1: had used for all of my in person purchases, and

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Speaker 1: then the City Double Cash Card for all of my

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Speaker 1: online purchases. I'd like to keep it nice and simple.

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Speaker 1: But through the process of talking through the different cards

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Speaker 1: that we use, you turned me on to the Costco

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Speaker 1: Anywhere Visa card, where you're earning four percent, specifically at

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Speaker 1: gas stations, which it comes in even more handy right

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Speaker 1: now with cash probaces where they are. Yeah, but then

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Speaker 1: that got me thinking, Okay, so I've got a card

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Speaker 1: that's optimized for grocery stores, Joel's got this card that's

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Speaker 1: optimized for gas. The only other instances where I'm using

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Speaker 1: a card in person are restaurants. So that set me

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Speaker 1: down this rabbit trail of trying to figure out, Okay,

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Speaker 1: what credit card is out there that is offering the

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Speaker 1: most cash back on restaurants with a card that doesn't

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Speaker 1: have an annual fee. And I found it. It is

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Speaker 1: the US Bank Altitude Go card, and they are all

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Speaker 1: it's kind of a yeah, it's kind of obscure. You

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Speaker 1: saw the other day, and you're like, is that a

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Speaker 1: target card? It doesn't like it's red and it kind

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Speaker 1: of has like a little white circle thing on it. However,

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Speaker 1: they pay four percent at restaurants, and so instead of

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Speaker 1: I was taking the kind of the simple path, but

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Speaker 1: no longer. I am obviously still rocking the six percent

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Speaker 1: with a blue Cash Preferred at grocery stores. I'm rocking

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Speaker 1: the US Bank Altitude Go earning four percent at restaurants.

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Speaker 1: And now I applied and also got the Costco Anywhere

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Speaker 1: visa for all of my gas purchases, and of course

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Speaker 1: the City double Cash for all of my online purchases.

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Speaker 1: That's a mouthful there, you got, hey like, but but

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Speaker 1: it is working for me, and I am so stoked

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Speaker 1: because I am not all about you know, like there

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Speaker 1: are some cards where they they change the category and

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Speaker 1: it's like, okay, you have to spend this car every

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Speaker 1: three months. I'm not gonna do that. I'm me neither,

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Speaker 1: but I want. I am down to figure it out

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Speaker 1: once and to stick with it as long as they continue,

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Speaker 1: you know, with those offerings. Yeah, and I think, you know,

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Speaker 1: finding a sweet spot for you with how many credit

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Speaker 1: cards you have is a good thing. And for some

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Speaker 1: people too is simple enough and they're getting enough rewards

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Speaker 1: where it's like cool, I can stick to this plan.

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Speaker 1: Some people want to optimize to the fullest and they

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Speaker 1: want to have seven or eight cards and they're constantly

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Speaker 1: switching things up based on rotating categories and stuff like that.

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Speaker 1: It really comes down to how much you want to

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Speaker 1: optimize the rewards that you're getting on the credit cards

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Speaker 1: that you have in your wallet. And I think you

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Speaker 1: found a sweet spot. Like I agree, I think three

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Speaker 1: or four cards, three cards you know, on my person

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Speaker 1: at any point in time. Yeah, that I am willing

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Speaker 1: to do. And hopefully that can help some of our

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Speaker 1: listeners out there. And if you make it too complicated,

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Speaker 1: if you optimize too hard, you're liable to get things

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Speaker 1: mixed up. And yeah, and so yeah, you want to

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Speaker 1: make sure that you only go as complex as your

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Speaker 1: little brain can handle. My brain is the size of

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Speaker 1: like dinosaurs, and so I just I don't know. I

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Speaker 1: don't want to overcomplicate things. Three credit cards for me

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Speaker 1: is as optimized as I want to get. But I

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Speaker 1: understand if people want to go go harder. And so

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Speaker 1: it sounds like you went a little harder and you

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Speaker 1: found some success. But yeah, let's move on. Matt. Let's

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Speaker 1: mention the beer that we're having on this episode. This

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Speaker 1: one is called Volume Integral. It's my Pontoon Brewing and

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Speaker 1: a listener Miguel actually gave this one to us at

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Speaker 1: our recent listener hang out in Atlanta. So thanks, Miguel.

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Speaker 1: Is a nice meeting you, and thanks for sharing your beer.

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Speaker 1: But let's keep going, Matt, let's get to the topic

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Speaker 1: in hand. We're talking about the weird science behind irrational

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Speaker 1: money decisions. And if you were to ask people, man,

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Speaker 1: I think a lot of people would say, I check

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Speaker 1: my phone I don't know, thirty times a day. But

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Speaker 1: yet stats actually show us that most Americans unlock their

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Speaker 1: phone something like a hundred and sixty times. The thing is,

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Speaker 1: we often underestimate ourselves when it comes to our patterns

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Speaker 1: and our behaviors. And yeah, if you actually look at

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Speaker 1: the screen time app to see what your cell phone

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Speaker 1: usage I actually looks like in real life, you might

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Speaker 1: find that it's a drastic difference from what your perception is. Basically,

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Speaker 1: we humans were not the best when it comes to

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Speaker 1: self awareness, and that is why we decided to create

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Speaker 1: this episode, because when it comes to your money, that

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Speaker 1: lack of self awareness can really reak havoc in many

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Speaker 1: of the decisions that you make. But knowing some of

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Speaker 1: the most popular behavioral finance terms, defining them, and then

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Speaker 1: understanding your tendency linking that actual pattern of behavior to

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Speaker 1: how you actually react in certain circumstances, it can help

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Speaker 1: you improve how you react in the heat of the moment.

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Speaker 1: And so that's really what this episode is about. That's

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Speaker 1: what we want to achieve here. That's right. Yeah, we

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Speaker 1: don't always know why we act the way that we do,

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Speaker 1: and you know, sometimes we are incredibly well reasoned, but

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Speaker 1: other times we just go with our gut on a whim.

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Speaker 1: It probably depends on you know, like the different what

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Speaker 1: what day of the week, it is, the mood that

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Speaker 1: we're in, what you have for breakfast, the specific situation

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Speaker 1: that you find yourself in. But we feel that by

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Speaker 1: an understanding and naming some of these different behavioral economic terms,

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Speaker 1: that we might be more successful and quickly reaching our

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Speaker 1: financial goals. We believe that if we understand our tendency

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Speaker 1: to make irrational decisions, that we might be more inclined

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Speaker 1: to second guess our gut reactions. Uh, and to think

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Speaker 1: differently about how and why it is that we make

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Speaker 1: these decisions in the first place. Basically will be more

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Speaker 1: open to the enormous reality of our own flawed decision making.

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Speaker 1: I think just by naming it, we're going to see

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Speaker 1: better outcomes. Uh. It kind of removes some of the

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Speaker 1: fear from the things that we're doing. Like, and that's

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Speaker 1: the thing though, Like when it comes to our different behaviors,

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Speaker 1: like we we aren't scared of them, like and sometimes

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Speaker 1: I think we should have a healthy fear of them.

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Speaker 1: Like it makes me think of with our girls. Uh,

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Speaker 1: when there's a thunderstorm, they get scared right Like it's

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Speaker 1: it's loud, it's intimidating, it scares them. But Kate and I,

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Speaker 1: like we worked to explain to them, Hey, you know,

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Speaker 1: it's actually causing that lightning and that thunder. It's just

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Speaker 1: when two clouds bump into each other, creates this thing

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Speaker 1: called static electricity. And we've done this thing before. We

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Speaker 1: have them get down them they'll you know, like we'll

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Speaker 1: have them walked by each other and bump into each

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Speaker 1: other and they think it's silly and they laugh and

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Speaker 1: they fall down and it makes a lot of noise

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Speaker 1: that kind of thing, and so by talking about it,

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Speaker 1: by naming it, it makes something like this less scary,

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Speaker 1: less intimidating. And that's our goal today with some of

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Speaker 1: these behavioral money terms. Yeah, for sure. I mean, I

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Speaker 1: think the goal here is to kind of take us

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Speaker 1: down a notch in our own eyes and realize the

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Speaker 1: mistakes that we have the potential to make, rather than

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Speaker 1: assuming the best about ourselves, maybe not thinking the worst,

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Speaker 1: but at least being cognizant of the reality of the

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Speaker 1: mistakes were prone to. And behavioral finance MATT has has

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Speaker 1: really become its own field of study in recent decades. Uh.

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Speaker 1: You know, we've had some experts in this space on

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Speaker 1: the show before. Daniel Crosby and Morgan Housel are two

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Speaker 1: guys that come to mind who just right brilliantly about

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Speaker 1: this subject, and you know, other major influencers in this

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Speaker 1: space in the past. A couple of the guys who

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Speaker 1: have been the most influential are Dainey Kneman and Richard Taylor.

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Speaker 1: But the simplest way to describe this field of study,

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Speaker 1: it's basically a marriage between finance and psychology, and that

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Speaker 1: does necessarily do a justice or explain you know how

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Speaker 1: deep this this field of study goes. But it's an

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Speaker 1: attempt to figure out why humans behave the way they do,

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Speaker 1: even when or especially when that behavior turns out to

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Speaker 1: be in their own worst interest, and often when it

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Speaker 1: comes to their their money. They're investing behavior behavior finance. Really,

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Speaker 1: it's seeking to find whether we act rationally or irrationally,

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Speaker 1: or often a combo of the two. And so, yeah,

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Speaker 1: we're going to discuss some of the more popular behavioral

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Speaker 1: finance terms in today's episode over these past thirty years,

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Speaker 1: the ones that have risen to the top, that have

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Speaker 1: shed the most light on human behavior and how those

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Speaker 1: impact how you save, how you spend, and how you

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Speaker 1: invest your money. And just being aware that these things

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Speaker 1: are at play in your psyche in the background when

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Speaker 1: you're in that act of decision making is going to

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Speaker 1: help you make better decisions in the future. That's right.

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Speaker 1: And it's important to note that incentives, um, they are

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Speaker 1: the main driver behind economic theory in general, and so

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Speaker 1: those are powerful and they are just a consist stent

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Speaker 1: reality in our everyday lives. A little incentive here or

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Speaker 1: there can change, you know how much it is that

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Speaker 1: we give the charity, or whether we invest or not

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Speaker 1: at all, even what type of car we decided to buy, Joe,

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Speaker 1: I know that actually had an impact on you with

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Speaker 1: the e V tax credit a few years ago, or

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Speaker 1: even when to buy a home. I mean that's you know,

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Speaker 1: the first time home buyer credit back in two thousand

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Speaker 1: and nine. Uh, that is when you and I when

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Speaker 1: we individually we didn't buy a home together, but we

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Speaker 1: didn't even know each other actually at the time, but

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Speaker 1: during that year we were both incentivized to purchase our

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Speaker 1: first homes. And so understanding what forces are at play

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Speaker 1: in our decisions, you know, what is pushing us in

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Speaker 1: certain directions, uh, is crucial so that we can make

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Speaker 1: better decisions for ourselves and for our families and to

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Speaker 1: not just response to the most intense stimulus that we

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Speaker 1: might encounter. And so these different incentives, whether they be

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Speaker 1: character sticks, these are some of the basic building blocks

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Speaker 1: of behavioral finance. Yes, so now we know, like incentives

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Speaker 1: govern everything, and our behavior can be erratic based on

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Speaker 1: the different incentives involved. And let's kind of dig into

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Speaker 1: some of the terms that behavioral finance has popularized, and

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Speaker 1: nudge is one of those terms that has kind of

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Speaker 1: been popularized. And and uh, who someone I mentioned Richard Taylor,

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Speaker 1: who's a professor at the University of Chicago School of Economics. Well,

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Speaker 1: he has talked about nudge theory the most, even wrote

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Speaker 1: a book about it, and he's been talking about it

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Speaker 1: for over a decade now, and he has discussed the

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Speaker 1: many ways that we are nudged into certain choices right

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Speaker 1: where one of the examples that he gives is talking

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Speaker 1: about where food is placed in a buffet or in

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Speaker 1: a grocery store and how that determines how often people

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Speaker 1: opt for those foods. Uh, you know, we're not necessarily

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Speaker 1: being strong armed into choosing a salad, but if the

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Speaker 1: salad comes before the burger, were more likely to choose it,

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Speaker 1: whereas if the burgers right in front of our face,

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Speaker 1: we might not for that instead. And yeah, he says

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Speaker 1: we're prone to make a choice based on the way

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Speaker 1: things are presented to us, by what he calls choice architects.

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Speaker 1: And one of the most effective nudges that we've seen

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Speaker 1: are automatic enrollments into workplace sponsored For one case, instead

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Speaker 1: of being given a choice and saying yes or no,

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Speaker 1: you're automatically opted in and you have to decide to

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Speaker 1: say no. Instead, you have to actively do something in

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Speaker 1: order to ensure that your money is not going into

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Speaker 1: your four one K if your workplace opts for auto enrollment.

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Speaker 1: So those kinds of nudges, when you notice some, they

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Speaker 1: can be There can be helpful nudges. There can be

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Speaker 1: unhelpful nudges, Like a calendar reminder can be a powerful

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Speaker 1: help so that you actually do what you want to do.

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Speaker 1: But noticing where nudges are and how they're impacting your

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Speaker 1: decision making can be really helpful so that you're not

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Speaker 1: just like mat said earlier, responding to like the loudest

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Speaker 1: stimulus that's in front of you. For instance, when you're

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Speaker 1: scrolling Instagram and there's basically one in four things that

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Speaker 1: you see on that app is a nudge to buy

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Speaker 1: something or to click, and if you realize that it

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Speaker 1: might be a little a little bit easier to refrain

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Speaker 1: from doing so, or even like what you said, Joel,

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Speaker 1: creating a calendar reminder, like creating your own nudge to

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Speaker 1: do the behavior to you know, to follow through with

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Speaker 1: the actions that you want to see yourself do. Even today,

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Speaker 1: I still have a calendar reminder at the beginning of

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Speaker 1: every month. That's a notification to make sure that I

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Speaker 1: have paid the previous months credit card balances. We're talking

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Speaker 1: about credit cards earlier. If you're not on top of that,

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Speaker 1: it can get out of hand. But that's one of

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Speaker 1: the small things that you can do to make sure

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Speaker 1: that you are, you know, following through and successfully keeping

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Speaker 1: up with your your finances. Uh. So Joel, you know,

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Speaker 1: speaking of nudges default bias. Uh, this is the term

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Speaker 1: at play here when it comes to nudges, and it's

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Speaker 1: an effective way to get people to do something because

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Speaker 1: it doesn't require any action. Uh. This is especially effective

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Speaker 1: when the right decision is difficult to know, or when

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Speaker 1: there are a lot of different options. Too many choices

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Speaker 1: can lead to decision fatigue, and it will often cause

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Speaker 1: us to go with the flow, continuing to make the

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Speaker 1: decisions that we've always made because that is what is

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Speaker 1: familiar to us. This can play out in hundreds of

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Speaker 1: different ways, from what we eat for breakfast, where we shop,

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Speaker 1: to the different investments that we choose. Going with a

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Speaker 1: default isn't always bad, but we do want you to

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Speaker 1: question the options that are lay it out before you

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Speaker 1: because oftentimes the standard default option may not be the

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Speaker 1: best option for you. Yeah, just because you've been eating

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Speaker 1: Golden grams every morning for decades, that doesn't mean you

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Speaker 1: should keep doing it, Right, Like, that's become your defaults.

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Speaker 1: Unless you really love Golden grams, that's fine as soon

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Speaker 1: as you're actively making that decision. And if you're eating

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Speaker 1: carrots and apples for lunch, and then you know what,

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Speaker 1: maybe you can spourge and use some of your crummy

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Speaker 1: calories on those Golden grams. But just because you've been

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Speaker 1: doing it doesn't mean you should keep doing it. You

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Speaker 1: should question that move. And and just because you've been

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Speaker 1: working with a financial advisor who charges big fees for

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Speaker 1: his or her services, that doesn't mean you should keep

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Speaker 1: doing that either. Have you already gotten the advice you needed?

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Speaker 1: Can you now go it alone and feel comfortable doing that?

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Speaker 1: Maybe it's time to leave. Also, just because you're biased

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Speaker 1: towards saving money instead of investing your money, that doesn't

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Speaker 1: mean you should keep going in that direction either. Right,

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Speaker 1: Questioning all of those default assumptions, being open to alternative

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Speaker 1: viewpoints is so helpful in our life and in our finances.

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Speaker 1: We don't want you to be blown about by every

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Speaker 1: new idea that comes along. It's not that new is

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Speaker 1: always better than old, but you also don't want to

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Speaker 1: remain stubbornly entrenched doing things the way that you've done

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Speaker 1: up until this point, continuing to do what you've always

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Speaker 1: done without questioning it. Yeah, And oftentimes I think it's

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Speaker 1: it's not necessarily that we have a really strong opinion

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Speaker 1: as to why it is that we're doing what we

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Speaker 1: were doing. Is just because it was you know, you

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Speaker 1: chose at once and then you continue going down that path, right,

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Speaker 1: And I think oftentimes it can be helpful to think

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Speaker 1: through like who set that initial default option, like who

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Speaker 1: said that standard way of thinking? And oftentimes it's our parents,

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Speaker 1: And in some cases that that can be a really

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Speaker 1: good thing, depending on the guidance that they've given us,

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Speaker 1: But sometimes it cannot be a good thing, and it's

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Speaker 1: worth thinking through why it is that we're doing the

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Speaker 1: things that we're doing, uh, and whether or not we

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Speaker 1: can make some some better decisions in the future. Yeah,

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Speaker 1: I think that act of questioning can either lead us

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Speaker 1: to a new conclusion or can give us greater levels

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Speaker 1: of certainty when it comes to the route that we

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Speaker 1: have been taking. And so that act of questioning, though,

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Speaker 1: just builds confidence either way that we're either making the

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Speaker 1: wrong move, we gotta make a change, or that hey,

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Speaker 1: you know what, now I know the reason that I'm

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Speaker 1: doing the thing that I've been doing for the last

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Speaker 1: ten years. I realized that those Golden Gram's were uh

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Speaker 1: an on purpose choice. Then I'm glad I'm making And

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Speaker 1: so yeah, whatever it is, you just want to make

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Speaker 1: sure that you're that act of questioning is happening, because

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Speaker 1: it's going to help lead you to the best outcome.

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Speaker 1: There are more behavioral finance terms that we've got to

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Speaker 1: cover in this episode, Matt, some of which can cause

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Speaker 1: us to become runaway spenders or just terrible investors, and

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Speaker 1: we'll get to some of those right after this break.

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Speaker 1: All right, we are back in. We're talking about some

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Speaker 1: of the different behavioral finance terms and we're explaining how

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Speaker 1: it is that they lead us to do the things

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Speaker 1: that we do. We're gonna talk here and a little

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Speaker 1: bit about confirmation bias in the halo effect. But first, Jill,

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Speaker 1: let's talk about headonic adaptation. One of my favorites. This

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Speaker 1: is one we know we've actually covered this in depth

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Speaker 1: before on the show, but that was actually a long

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Speaker 1: time ago. But it's basically the tendency of humans to

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Speaker 1: quickly return to a pretty stable level of happiness despite

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Speaker 1: major positive or major negative events or life changes that

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Speaker 1: happened to us. So, Joel, for instance, did your team

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Speaker 1: win the World Series recently? It's been a while actually

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Speaker 1: when it did happen, I mean, and I was excited

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Speaker 1: as well. But when it happened, we were pumped, right,

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Speaker 1: you more so than me. A couple of tears that night, really,

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Speaker 1: you cried a little almost Yeah, I don't know. When

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Speaker 1: I saw Freddie it made me happy. You felt good

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Speaker 1: for him, right, he's been that Yeah, he's been with

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Speaker 1: the race for so long. You were, I mean, you're

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Speaker 1: I'm sure you're ecstatic. You're probably living on cloud nine

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Speaker 1: for for that day and maybe the next couple of

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Speaker 1: days at least. But if it happened a while ago,

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Speaker 1: which you know, that's kind of where we are at

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Speaker 1: this point, it probably doesn't nearly feel as great of

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Speaker 1: a thing in your life. Probably that that victory barely

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Speaker 1: registers on your radar, I'm guessing it's died down. The

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Speaker 1: joy of the victory has died down quite a bit.

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Speaker 1: You're not waking up every morning like, yeah, the praise

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Speaker 1: were number one. Eyes are already turned for so many

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Speaker 1: rules to next season you want to like repeat you know. Yeah,

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Speaker 1: And so hedonic adaptation, Uh, it can have positive and

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Speaker 1: negative benefits for us as humans. So a positive outcome

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Speaker 1: is that it allows us to move past traumatic events.

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Speaker 1: For instance, there is some research done with quadriplegics and

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Speaker 1: they measure their happiness immediately after the accident that caused

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Speaker 1: that loss, but then they know what they learned is

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Speaker 1: that over time they kind of resumed their basic baseline

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Speaker 1: of happiness. And so this is a way that hedonic

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Speaker 1: adaptation is a good thing. But when it comes to

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Speaker 1: our money and how it is that we spend, it

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Speaker 1: also means that we are able to quickly adjust to

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Speaker 1: a higher standard of living. It's just easy for our

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Speaker 1: expectations to exceed our budgets. And it's not that you

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Speaker 1: should keep your standards so low that you don't desire

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Speaker 1: financial progress that leads to greater wealth accumulation and some

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Speaker 1: of the healthy lifestyle goals that can accompany that success.

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Speaker 1: But the tendency to continue to spend in order to

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Speaker 1: achieve greater levels of happiness is real. So many of

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Speaker 1: us are blinded by that pursuit of just more and more,

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Speaker 1: thinking that that is what's going to make us happy. Um,

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Speaker 1: but those levels of happiness when we spend, when we consume,

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Speaker 1: are just incredibly short lived. And so you've got to

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Speaker 1: go back to the well for that next purchase in

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Speaker 1: order to continue to maintain that same baseline level of

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Speaker 1: happiness that you had before. It can really become this

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Speaker 1: never ending cycle that leaves you with more stuff and

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Speaker 1: less money at the end of the day. So we

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Speaker 1: would say be sure to pay special attention to hedonic adaptation,

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Speaker 1: or the hedonic treadmill as it's also called, which makes

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Speaker 1: a whole lot of sense because like you never stop running,

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Speaker 1: like you just keep bumping up the speed a little

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Speaker 1: by little, doesn't matter how fast you're cranking on that thing.

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Speaker 1: You're not getting anyway, Yeah, you're still in the same

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Speaker 1: spot exactly. And and so we would say that gratitude

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Speaker 1: and discipline are the major ways to combat the ugly

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Speaker 1: effects of the hedonic treadmill. To be thankful for what

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Speaker 1: you have, truly thankful, to name it, and to say

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Speaker 1: it out loud, to talk about it with your significant

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Speaker 1: other with your kids. Those are the kind of things

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Speaker 1: that are going to move the needle creating of a

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Speaker 1: desire to pursue more things because you've already got enough

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Speaker 1: that makes you happy. And discipline is another major piece

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Speaker 1: of the puzzle because the more we can say no

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Speaker 1: to things that look nice because we realize the limiting

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Speaker 1: happiness that they're able to provide, the better off we're

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Speaker 1: gonna be too. That's true. Man. Uh, let's talk about

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Speaker 1: over confidence because this is our next behavioral finance term.

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Speaker 1: And maybe it's it's less of a term and it's

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Speaker 1: more kind of a general attitude. But this is a

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Speaker 1: good one to become acquainted with because sometimes a little

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Speaker 1: bit of knowledge can be worse than none at all.

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Speaker 1: This is something that we've often heard. Uh, the smartest

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Speaker 1: folks out there can be the most susceptible to thinking

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Speaker 1: that they've got, you know, all the right answers, that

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Speaker 1: they've got it all figured out. For instance, there's a

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Speaker 1: study where doctors they assume that freebees that they received

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Speaker 1: from the different pharmaceutical companies that they impact their fellow

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Speaker 1: doctors judgment, but they don't believe that impacts their own judgment.

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Speaker 1: It's a rate of something like sixt where they believe

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Speaker 1: that it impacts others, whereas for themselves they only think

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Speaker 1: it's like sixteen percent. Hi nefficultly less like I'm teflon,

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Speaker 1: They're not exactly. Uh, it's so over confidence is just

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Speaker 1: this consistent flaw amongst human beings, but especially males. We

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Speaker 1: actually recently came across some surveys UH that showed that

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Speaker 1: females portfolios drastically outperformed their male counterparts, and that's largely

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Speaker 1: due to the fact that, due to their overconfidence, males

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Speaker 1: are buying and selling stocks or funds within their portfolio

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Speaker 1: too often. They're messing with it too much because they

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Speaker 1: have confidence that they can beat the market, when in

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Speaker 1: reality they can't. Yeah, just like you said, sometimes a

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Speaker 1: small bit of knowledge can be worse than none at all. Well,

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Speaker 1: I think that a small win or two can help

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00:20:38,280 --> 00:20:41,240
Speaker 1: create even more over confidence and can lead to even

431
00:20:41,240 --> 00:20:43,639
Speaker 1: more disastrous results. In the end, there's a lot of

432
00:20:43,640 --> 00:20:48,480
Speaker 1: people flying high in today's market that has seen extraordinary gains.

433
00:20:49,119 --> 00:20:51,399
Speaker 1: But what's gonna happen with some of the people who

434
00:20:51,440 --> 00:20:54,840
Speaker 1: have gotten over confident, who continued to trade frequently, and

435
00:20:54,880 --> 00:20:57,280
Speaker 1: who continue to take risk your bets. That remains to

436
00:20:57,280 --> 00:20:59,359
Speaker 1: be seen. But here's what we would say, if you

437
00:20:59,400 --> 00:21:02,440
Speaker 1: want to combat at over confidence in your life, don't

438
00:21:02,520 --> 00:21:06,440
Speaker 1: listen to the forecasters. In part, typically because they're wrong

439
00:21:06,920 --> 00:21:09,359
Speaker 1: when they're calling out price targets for different individual stocks

440
00:21:09,400 --> 00:21:12,520
Speaker 1: or cryptocurrencies. Those price targets are all across the board

441
00:21:12,560 --> 00:21:15,560
Speaker 1: depending on who you're listening to. But another reason not

442
00:21:15,600 --> 00:21:18,520
Speaker 1: to listen is because it can bolster your confidence in

443
00:21:18,560 --> 00:21:22,120
Speaker 1: the wrong direction. The truly smart person has a deep

444
00:21:22,200 --> 00:21:25,240
Speaker 1: understanding that even as they learn more, they're also seeing

445
00:21:25,320 --> 00:21:28,360
Speaker 1: a distinct rise in the amount of information they realize

446
00:21:28,440 --> 00:21:32,000
Speaker 1: they don't know or understand. And it's not false humility.

447
00:21:32,040 --> 00:21:35,040
Speaker 1: It's this real understanding that as we gain more insight,

448
00:21:35,240 --> 00:21:37,760
Speaker 1: we also see how deep that field of study goes

449
00:21:38,040 --> 00:21:40,199
Speaker 1: and how much more there is to know. It's kind

450
00:21:40,200 --> 00:21:42,560
Speaker 1: of like studying outer space and seeing the Milky Way

451
00:21:42,560 --> 00:21:45,480
Speaker 1: and then realizing that there are many, many, many more

452
00:21:45,520 --> 00:21:48,879
Speaker 1: galaxies outside of the Milky Way and thinking that you

453
00:21:48,920 --> 00:21:51,880
Speaker 1: know everything about space. I can't imagine there's any astronomers

454
00:21:52,000 --> 00:21:54,800
Speaker 1: or astrophysicists who who would say I know everything there

455
00:21:54,880 --> 00:21:56,800
Speaker 1: is to know about space, And it's almost as though

456
00:21:56,960 --> 00:21:58,720
Speaker 1: the more the heavens get open to us, the more

457
00:21:58,760 --> 00:22:02,359
Speaker 1: like superior images as we get from these magnificent telescopes,

458
00:22:02,840 --> 00:22:06,720
Speaker 1: that there's a greater realization of the lack of knowledge

459
00:22:06,840 --> 00:22:09,720
Speaker 1: that we actually have when it comes to the depths

460
00:22:09,760 --> 00:22:12,280
Speaker 1: of what space holds. And so, yeah, you don't have

461
00:22:12,320 --> 00:22:15,960
Speaker 1: to dive to the bottom of the knowledge, well necessarily,

462
00:22:16,040 --> 00:22:19,400
Speaker 1: but it's important to know that there's a gap that exists,

463
00:22:19,400 --> 00:22:22,160
Speaker 1: that always exists, and it brings i think a necessary

464
00:22:22,400 --> 00:22:25,080
Speaker 1: level of caution to the decisions that you make and

465
00:22:25,200 --> 00:22:27,119
Speaker 1: to the actions that you take. You know, and one

466
00:22:27,160 --> 00:22:29,560
Speaker 1: of the forces at play that can cause us to

467
00:22:29,640 --> 00:22:35,080
Speaker 1: become overly confident is confirmation bias. Most folks, they don't

468
00:22:35,080 --> 00:22:37,800
Speaker 1: want to have their mind change, right, whether we're talking

469
00:22:37,840 --> 00:22:42,080
Speaker 1: about uh, cultural wars, uh politics, you know, different views

470
00:22:42,080 --> 00:22:44,240
Speaker 1: that we have about money. We all love to be

471
00:22:44,280 --> 00:22:46,400
Speaker 1: told that we're right, and to that end, will even

472
00:22:46,480 --> 00:22:50,399
Speaker 1: cherry pick data or different anecdotal evidence and advice in

473
00:22:50,520 --> 00:22:53,159
Speaker 1: order to support a decision that we've already made, that

474
00:22:53,240 --> 00:22:54,960
Speaker 1: we we've made a long time ago. We're just looking

475
00:22:55,000 --> 00:22:57,680
Speaker 1: for the pieces of information to bolster our argument. We're

476
00:22:57,680 --> 00:22:59,560
Speaker 1: just looking for someone to come along and agree with

477
00:22:59,640 --> 00:23:03,480
Speaker 1: us it exactly. And so to avoid confirmation bias in

478
00:23:03,520 --> 00:23:06,560
Speaker 1: every avenue over lies, it's crucial to expose ourselves to

479
00:23:06,640 --> 00:23:09,480
Speaker 1: smart people with whom we might not fully agree. To

480
00:23:09,560 --> 00:23:12,080
Speaker 1: expose ourselves to different opinions, we've got to listen to

481
00:23:12,119 --> 00:23:15,440
Speaker 1: the best idea of the other side. Oftentimes you'll see

482
00:23:15,440 --> 00:23:18,800
Speaker 1: this specifically with cryptocurrencies. There are a lot of strong

483
00:23:18,880 --> 00:23:21,399
Speaker 1: opinions out there when it comes to crypto and different

484
00:23:21,440 --> 00:23:24,720
Speaker 1: coins uh. And the folks that you'll hear uh touting

485
00:23:24,720 --> 00:23:27,800
Speaker 1: how great it is the loudest are folks obviously who

486
00:23:27,840 --> 00:23:31,439
Speaker 1: are bought in. They believe it's the future, but they

487
00:23:31,440 --> 00:23:33,520
Speaker 1: don't know it when nobody knows what the future holds,

488
00:23:33,720 --> 00:23:35,919
Speaker 1: and so it might take someone who is a more

489
00:23:35,960 --> 00:23:39,200
Speaker 1: traditional investor to actually listen to that person to hear

490
00:23:39,200 --> 00:23:41,160
Speaker 1: their points. But on the other side of the coins,

491
00:23:41,200 --> 00:23:44,280
Speaker 1: somebody who is dead set on on it should probably

492
00:23:44,280 --> 00:23:47,280
Speaker 1: hear the arguments of somebody who is approaching crypto a

493
00:23:47,320 --> 00:23:50,360
Speaker 1: little more skeptically. There just aren't a lot of individuals

494
00:23:50,400 --> 00:23:53,200
Speaker 1: who are approaching some of these conversations with a balanced

495
00:23:53,240 --> 00:23:54,960
Speaker 1: head and who are willing to hear both sides of

496
00:23:55,000 --> 00:23:57,879
Speaker 1: the argument in order to make a balanced and informed decision.

497
00:23:57,920 --> 00:24:01,199
Speaker 1: We don't like nuance, Matt in this country, and uh

498
00:24:01,240 --> 00:24:04,200
Speaker 1: and and really I think as humans that's a human default,

499
00:24:04,400 --> 00:24:07,520
Speaker 1: is an inability or a difficulty in seeing nuance. And

500
00:24:07,560 --> 00:24:10,000
Speaker 1: so yeah, I completely agree. One of the one of

501
00:24:10,040 --> 00:24:13,040
Speaker 1: the best ways to combat confirmation bias is to be

502
00:24:13,119 --> 00:24:16,040
Speaker 1: willing to have your mind changed and to proactively listen

503
00:24:16,119 --> 00:24:18,200
Speaker 1: to the best arguments that are taking place on the

504
00:24:18,240 --> 00:24:20,879
Speaker 1: other side. And so, whether it's a political or a

505
00:24:20,880 --> 00:24:23,320
Speaker 1: money belief, you want to say, okay, well I actually

506
00:24:23,320 --> 00:24:26,200
Speaker 1: want to have that idea challenged and if it holds

507
00:24:26,240 --> 00:24:29,000
Speaker 1: up to scrutiny, uh, if I still continue to believe

508
00:24:29,040 --> 00:24:31,840
Speaker 1: the way I do now after listening to the top

509
00:24:32,080 --> 00:24:35,080
Speaker 1: crypto expert and saying, actually, they make a good point

510
00:24:35,119 --> 00:24:36,840
Speaker 1: here and here, and so maybe I should have some

511
00:24:36,880 --> 00:24:39,240
Speaker 1: exposure or you might walk away from that conversation saying

512
00:24:39,280 --> 00:24:42,400
Speaker 1: I still don't agree, but at least you heard them out.

513
00:24:42,480 --> 00:24:44,560
Speaker 1: And I think that's a really important step, so that

514
00:24:44,600 --> 00:24:47,040
Speaker 1: you're not just following your own gut, you're listening to

515
00:24:47,080 --> 00:24:50,520
Speaker 1: outside voices that can make a major impact on your

516
00:24:50,520 --> 00:24:54,200
Speaker 1: eventual decision. And Matt, one other behavioral finance term that

517
00:24:54,240 --> 00:24:57,600
Speaker 1: falls under this umbrella is the halo effect. Um, it's

518
00:24:57,720 --> 00:25:00,680
Speaker 1: another social force at play. And this is basically when

519
00:25:00,680 --> 00:25:03,960
Speaker 1: we attribute universal attributes towards someone based on a singular,

520
00:25:04,400 --> 00:25:07,040
Speaker 1: unrelated judgment. And those are really big words, but what

521
00:25:07,080 --> 00:25:10,480
Speaker 1: that means. You might encounter someone who's looking to sell

522
00:25:10,520 --> 00:25:13,560
Speaker 1: you a complex financial product, something like a universal life

523
00:25:13,560 --> 00:25:17,879
Speaker 1: insurance policy for your new baby, and uh, that sounds scary,

524
00:25:17,920 --> 00:25:20,800
Speaker 1: like run away from that person. There is no baby

525
00:25:20,800 --> 00:25:24,520
Speaker 1: who needs universal insurance. Runaway babies run away and uh

526
00:25:24,560 --> 00:25:27,600
Speaker 1: and yeah, basically, it could be that this person's incredibly friendly.

527
00:25:27,680 --> 00:25:30,080
Speaker 1: Maybe they're good looking to and they kind of good smile,

528
00:25:30,560 --> 00:25:33,639
Speaker 1: and they just from nice for a handshake, yeah, and

529
00:25:33,640 --> 00:25:37,439
Speaker 1: they just project confidence success and you're like, oh, I

530
00:25:37,480 --> 00:25:39,760
Speaker 1: want to do business with this person. You might be

531
00:25:39,840 --> 00:25:42,600
Speaker 1: tempted to assume that whatever they're selling you is something

532
00:25:42,600 --> 00:25:45,840
Speaker 1: that you should be buying. But no, Alas, that's the

533
00:25:45,840 --> 00:25:49,240
Speaker 1: halo effect taking place. That is this this person's like gentle,

534
00:25:49,320 --> 00:25:53,160
Speaker 1: calm demeanor, brilliant smile, uh, causing you to do something

535
00:25:53,200 --> 00:25:56,480
Speaker 1: that you otherwise know to be a terrible idea, buying

536
00:25:56,520 --> 00:25:59,800
Speaker 1: a crummy life insurance policy for your baby, and so, uh,

537
00:26:00,119 --> 00:26:01,480
Speaker 1: that's one of those things where you want to be

538
00:26:01,560 --> 00:26:04,560
Speaker 1: careful who the messenger is and go back and take

539
00:26:04,600 --> 00:26:07,320
Speaker 1: some time to deliberate, like is this a good idea

540
00:26:07,600 --> 00:26:09,359
Speaker 1: or it was I just kind of being convinced by

541
00:26:09,400 --> 00:26:11,520
Speaker 1: someone who's really good at the art of persuasion, who's

542
00:26:11,560 --> 00:26:14,320
Speaker 1: like just a really friendly individual. You want to make

543
00:26:14,359 --> 00:26:16,760
Speaker 1: sure that you're not being hoodwinked, even by someone who

544
00:26:16,800 --> 00:26:18,719
Speaker 1: appears to be a great person. That's right. I mean,

545
00:26:18,720 --> 00:26:21,679
Speaker 1: that's why sales pay so well for certain individuals because

546
00:26:21,760 --> 00:26:24,800
Speaker 1: they have found a career in industry where they are

547
00:26:24,840 --> 00:26:28,120
Speaker 1: able to shine. I think another instance where we see

548
00:26:28,160 --> 00:26:30,480
Speaker 1: the halo effect that play is like if you've met

549
00:26:30,480 --> 00:26:32,720
Speaker 1: somebody that went to the university that you went to,

550
00:26:32,800 --> 00:26:35,480
Speaker 1: it's like, oh, you're a U g A alumni as well,

551
00:26:35,760 --> 00:26:37,480
Speaker 1: and so you automatically think, oh, they're a good person,

552
00:26:37,520 --> 00:26:40,159
Speaker 1: we've got shared life experiences, we speak the same language,

553
00:26:40,200 --> 00:26:42,760
Speaker 1: that kind of thing. But it is not necessarily indicative

554
00:26:43,160 --> 00:26:45,280
Speaker 1: of what it is they're trying to sell. If they're

555
00:26:45,280 --> 00:26:47,720
Speaker 1: trying to sell you something, in regarding what they're selling to, like,

556
00:26:47,720 --> 00:26:50,480
Speaker 1: it doesn't necessarily have to even be a terrible product,

557
00:26:50,560 --> 00:26:53,080
Speaker 1: like it could be something that's decent, but that's just

558
00:26:53,160 --> 00:26:56,200
Speaker 1: where your individual life goals come into play. It could

559
00:26:56,240 --> 00:26:58,399
Speaker 1: be something that maybe is good for I don't know,

560
00:26:58,440 --> 00:26:59,960
Speaker 1: twenty years from now, this would be a good idea

561
00:27:00,000 --> 00:27:02,160
Speaker 1: it for you, or if maybe you're in a different,

562
00:27:02,160 --> 00:27:05,159
Speaker 1: completely different situation, this is a product or this is

563
00:27:05,200 --> 00:27:07,520
Speaker 1: a service that you would be all about, but for you,

564
00:27:07,560 --> 00:27:09,680
Speaker 1: it may not be, and it would behoove you to

565
00:27:09,960 --> 00:27:12,640
Speaker 1: reflect on that decision. You don't need that long term

566
00:27:12,640 --> 00:27:15,679
Speaker 1: care insurance at the and you definitely don't need what

567
00:27:15,760 --> 00:27:18,840
Speaker 1: did we say that universal life insurance policy for a

568
00:27:18,880 --> 00:27:21,320
Speaker 1: new baby. That's not something yeah, that we recommend, right

569
00:27:21,320 --> 00:27:22,760
Speaker 1: and yeah, and so sometimes you just need to take

570
00:27:22,800 --> 00:27:26,040
Speaker 1: a step back and realize, hey, I'm naturally uh, I

571
00:27:26,080 --> 00:27:28,480
Speaker 1: have a natural affinity for this person based on this,

572
00:27:28,480 --> 00:27:30,760
Speaker 1: this or that. But take a step back and give

573
00:27:30,760 --> 00:27:33,840
Speaker 1: it some time and do some research on your own

574
00:27:33,840 --> 00:27:35,600
Speaker 1: to make sure you're making the right decision for you.

575
00:27:35,920 --> 00:27:37,879
Speaker 1: Don't make a rush decision in the moment. That's right.

576
00:27:37,960 --> 00:27:40,960
Speaker 1: Let's talk about loss of version. This is another behavioral

577
00:27:40,960 --> 00:27:44,159
Speaker 1: finance term. And and sometimes I feel that over confidence

578
00:27:44,240 --> 00:27:46,960
Speaker 1: and loss of version or actually acting in opposite directions

579
00:27:47,400 --> 00:27:50,840
Speaker 1: over confidence can lead to a choice that ultimately results

580
00:27:50,840 --> 00:27:54,200
Speaker 1: in higher losses than we otherwise maybe would have experienced.

581
00:27:54,480 --> 00:27:57,080
Speaker 1: But then loss of version is kind of on the

582
00:27:57,080 --> 00:27:59,520
Speaker 1: opposite end of the spectrum, and it says that we

583
00:27:59,800 --> 00:28:03,800
Speaker 1: feel year losses more than we appreciate gains. So basically

584
00:28:03,880 --> 00:28:06,240
Speaker 1: an example of this is we feel it more when

585
00:28:06,280 --> 00:28:08,960
Speaker 1: the market takes a ten percent dip impacting our investments

586
00:28:09,000 --> 00:28:11,159
Speaker 1: than when our four O one K balance is going

587
00:28:11,240 --> 00:28:14,080
Speaker 1: to be up by ten percent. In fact, it's actually

588
00:28:14,160 --> 00:28:18,440
Speaker 1: it's widely accepted that losses feel twice as bad as

589
00:28:18,600 --> 00:28:20,879
Speaker 1: gains of the same amount, and so for you know,

590
00:28:20,880 --> 00:28:22,440
Speaker 1: your four oh one k balance would actually need to

591
00:28:22,440 --> 00:28:26,480
Speaker 1: be up by twenty in order for those to feel equivalent.

592
00:28:26,920 --> 00:28:28,720
Speaker 1: You would think that they would have the same type

593
00:28:28,720 --> 00:28:31,080
Speaker 1: of impact, you know, the amounts that are the same.

594
00:28:31,359 --> 00:28:33,000
Speaker 1: You would think that they would feel like that they

595
00:28:33,040 --> 00:28:35,119
Speaker 1: would have the same type of impact on us emotionally

596
00:28:35,320 --> 00:28:39,360
Speaker 1: and psychologically. But because of our tendency to fear loss more,

597
00:28:39,760 --> 00:28:43,080
Speaker 1: it actually has an outsized impact on how we behave Yeah,

598
00:28:43,160 --> 00:28:46,560
Speaker 1: we'd be equally as devastated as we would be overjoyed

599
00:28:46,600 --> 00:28:48,800
Speaker 1: if we twenty bucks fell out of our wallet versus

600
00:28:48,800 --> 00:28:51,160
Speaker 1: someone handed us forty bucks, which is just fascinating to

601
00:28:51,200 --> 00:28:53,800
Speaker 1: realize that it takes twice as much gain. It's such

602
00:28:53,800 --> 00:28:56,800
Speaker 1: a weird thing to note about human nature's but weird

603
00:28:56,880 --> 00:29:00,280
Speaker 1: science stuff. It's a weird science exactly, And that loss

604
00:29:00,280 --> 00:29:03,560
Speaker 1: a version can cause us to become too conservative when

605
00:29:03,560 --> 00:29:06,400
Speaker 1: it comes to our investments. We we fear loss so

606
00:29:06,520 --> 00:29:08,600
Speaker 1: much that we don't take the risk that we need

607
00:29:08,640 --> 00:29:10,800
Speaker 1: to take in order to grow our wealth. By choosing

608
00:29:10,800 --> 00:29:13,800
Speaker 1: funds that might be less volatile, we're able to ensure

609
00:29:13,840 --> 00:29:16,160
Speaker 1: that we never experience too much loss than we never

610
00:29:16,520 --> 00:29:20,120
Speaker 1: feel that pain. But here's the thing, more volatile stock

611
00:29:20,160 --> 00:29:23,000
Speaker 1: heavy portfolio is going to in the long run, if

612
00:29:23,040 --> 00:29:25,400
Speaker 1: you're a younger investor, end up generating more wealth for

613
00:29:25,440 --> 00:29:28,360
Speaker 1: you over time. So, so, how do you combat loss

614
00:29:28,360 --> 00:29:30,640
Speaker 1: of version so that you can stick to the plan

615
00:29:30,960 --> 00:29:33,520
Speaker 1: and invest in a way that you need to take

616
00:29:33,640 --> 00:29:35,760
Speaker 1: enough risk, not just keep your money hidden in a

617
00:29:35,840 --> 00:29:38,440
Speaker 1: savings account. We would say, don't get too emotional when

618
00:29:38,480 --> 00:29:41,400
Speaker 1: it comes to your portfolio. Right down an investment plan

619
00:29:41,480 --> 00:29:43,680
Speaker 1: and stick to it, and then take the app of

620
00:29:43,800 --> 00:29:46,520
Speaker 1: your phone because that might be causing you to make

621
00:29:46,560 --> 00:29:49,400
Speaker 1: emotional trades in the moment the more involved you are

622
00:29:49,440 --> 00:29:52,400
Speaker 1: in the data jay gyrations of your investments, the more

623
00:29:52,480 --> 00:29:55,320
Speaker 1: likely you are to make changes after a day in

624
00:29:55,320 --> 00:29:58,080
Speaker 1: which there's been poor performance. But ultimately, if you have

625
00:29:58,080 --> 00:30:00,160
Speaker 1: a written down plan, you can go back to it

626
00:30:00,200 --> 00:30:02,200
Speaker 1: and say, no, no, no no, no, this is a long

627
00:30:02,280 --> 00:30:06,000
Speaker 1: term investment. These short term losses mean nothing in the

628
00:30:06,000 --> 00:30:08,120
Speaker 1: grand scheme of things, and so I get it. Losses

629
00:30:08,400 --> 00:30:11,400
Speaker 1: never feel good, but they're a part of the cycle

630
00:30:11,640 --> 00:30:14,160
Speaker 1: of building wealth over time. Yeah. And not only is

631
00:30:14,200 --> 00:30:16,600
Speaker 1: a written plan helpful when you're seeing losses, but even

632
00:30:16,600 --> 00:30:18,600
Speaker 1: as the market's going up. I mean, I've seen this

633
00:30:18,640 --> 00:30:21,280
Speaker 1: in my own life that the ability to refer back

634
00:30:21,320 --> 00:30:24,719
Speaker 1: to my investment plan has kept me continuing to invest

635
00:30:24,760 --> 00:30:26,959
Speaker 1: when I didn't feel like I wanted too. Because as

636
00:30:27,000 --> 00:30:29,000
Speaker 1: the market goes up, you think, oh man, we're at

637
00:30:29,040 --> 00:30:31,800
Speaker 1: all time highs. And I mean, this is where I

638
00:30:31,840 --> 00:30:34,680
Speaker 1: was even earlier this year. The market has come so

639
00:30:34,720 --> 00:30:36,560
Speaker 1: far since the beginning of this year. But the beginning

640
00:30:36,560 --> 00:30:37,959
Speaker 1: of this year, the I mean the markets were at

641
00:30:37,960 --> 00:30:40,040
Speaker 1: all you know, we're at all all time highs basically

642
00:30:40,200 --> 00:30:41,680
Speaker 1: basically been at all time highs for most of the

643
00:30:41,760 --> 00:30:45,920
Speaker 1: last decade. Yes, and it was difficult for me to say, oh, like,

644
00:30:46,000 --> 00:30:49,040
Speaker 1: do I want to fully fund my wrath Ira at

645
00:30:49,040 --> 00:30:51,880
Speaker 1: the beginning of the year, And instead what I did

646
00:30:51,960 --> 00:30:54,280
Speaker 1: was I just referred to my plan and I said, yes,

647
00:30:54,920 --> 00:30:56,440
Speaker 1: I am going to do it, like this is what

648
00:30:56,520 --> 00:30:58,440
Speaker 1: I do. And I'm glad because had I not, I

649
00:30:58,440 --> 00:31:01,120
Speaker 1: would have potentially been sitting on need that you know,

650
00:31:01,160 --> 00:31:04,040
Speaker 1: would have missed out on over in gains that we've

651
00:31:04,040 --> 00:31:06,280
Speaker 1: seen this year, which is just mind blowing. But I

652
00:31:06,280 --> 00:31:08,760
Speaker 1: think this loss of version, man, it has effects on

653
00:31:08,800 --> 00:31:10,720
Speaker 1: not just our investments, but I was thinking about it

654
00:31:10,720 --> 00:31:13,520
Speaker 1: from the standpoint of like employment, because we might be

655
00:31:13,600 --> 00:31:15,520
Speaker 1: in a job that we don't really love, but our

656
00:31:15,680 --> 00:31:19,360
Speaker 1: ingrained aversion to loss keeps us there when maybe instead

657
00:31:19,800 --> 00:31:22,400
Speaker 1: we would be better served to maybe ask for a

658
00:31:22,480 --> 00:31:24,800
Speaker 1: raise or start looking for another position. But whether it

659
00:31:24,840 --> 00:31:27,800
Speaker 1: be because we don't want to be rejected like like

660
00:31:27,920 --> 00:31:29,440
Speaker 1: that is a type of loss, right like that as

661
00:31:29,480 --> 00:31:32,000
Speaker 1: you being told no, as opposed to you being told yes,

662
00:31:32,320 --> 00:31:35,320
Speaker 1: you are hired, whether it's that or like from the

663
00:31:35,320 --> 00:31:39,040
Speaker 1: standpoint of entrepreneurship, if that's you being afraid of lost

664
00:31:39,080 --> 00:31:42,040
Speaker 1: income as opposed to Okay, well maybe I'll just stay

665
00:31:42,080 --> 00:31:44,360
Speaker 1: because I can continue to receive that nice, steady paycheck.

666
00:31:44,600 --> 00:31:47,040
Speaker 1: I think those are both whether it be the rejection

667
00:31:47,080 --> 00:31:49,920
Speaker 1: standpoint or the financial standpoint, those are both ways that

668
00:31:49,960 --> 00:31:52,120
Speaker 1: I think keep people tied to jobs that they don't

669
00:31:52,200 --> 00:31:56,440
Speaker 1: necessarily love, and it keeps more people from entrepreneurship who

670
00:31:56,600 --> 00:31:59,080
Speaker 1: might be much happier and much more successful in something

671
00:31:59,120 --> 00:32:03,720
Speaker 1: completely new. Yeah, for sure, losing stinks, but ultimately you

672
00:32:03,800 --> 00:32:05,800
Speaker 1: got to lose some to win some, right and uh

673
00:32:05,840 --> 00:32:08,880
Speaker 1: into that is part of the process in life that

674
00:32:08,960 --> 00:32:11,320
Speaker 1: we are going to incur losses, and for those of

675
00:32:11,400 --> 00:32:14,520
Speaker 1: us who refuse to put ourselves at risk, we're actually

676
00:32:14,560 --> 00:32:17,800
Speaker 1: getting experience. The most severe losses are We've got more

677
00:32:17,880 --> 00:32:20,320
Speaker 1: behavioral finance terms that we we have to cover in

678
00:32:20,560 --> 00:32:25,280
Speaker 1: this episode, including the one called the Ikea effect. We'll

679
00:32:25,320 --> 00:32:26,880
Speaker 1: figure out what the sweedes are up to right up

680
00:32:26,880 --> 00:32:37,280
Speaker 1: for this break. All right, we are back for the break,

681
00:32:37,320 --> 00:32:41,200
Speaker 1: and we are talking still about how we are so irrational,

682
00:32:41,400 --> 00:32:43,600
Speaker 1: not only with our lives but with our money. Oftentimes,

683
00:32:43,680 --> 00:32:46,120
Speaker 1: you me, all of us. We all do it. Man.

684
00:32:46,480 --> 00:32:48,880
Speaker 1: None of us are immune from these tendencies. And if

685
00:32:48,920 --> 00:32:52,480
Speaker 1: you think you're immune from these behavioral tendencies, you better

686
00:32:52,560 --> 00:32:55,160
Speaker 1: check yourself. You need to like dig another level deeper,

687
00:32:55,240 --> 00:32:57,680
Speaker 1: because I think for those of us who think that's

688
00:32:57,680 --> 00:33:00,760
Speaker 1: probably I don't struggle with that. Yeah, we probably actually

689
00:33:00,800 --> 00:33:04,000
Speaker 1: need to look even more deeply at the fact that

690
00:33:04,200 --> 00:33:06,360
Speaker 1: there's some deep rooted behavioral issues in our lives. Going

691
00:33:06,680 --> 00:33:09,200
Speaker 1: back to the attitude of overconfidence, like if you are

692
00:33:09,320 --> 00:33:13,840
Speaker 1: confident in your ability to can not be overconfident? Well,

693
00:33:13,960 --> 00:33:16,800
Speaker 1: you're probably overcommon. But let's keep moving me. Let's talk

694
00:33:16,800 --> 00:33:20,000
Speaker 1: about the endowment effect. This is, when you own something,

695
00:33:20,280 --> 00:33:22,560
Speaker 1: you tend to value it more. So it does this

696
00:33:22,680 --> 00:33:26,520
Speaker 1: mean that hoarders have an extreme case of the endowment effects? Yeah,

697
00:33:26,520 --> 00:33:30,240
Speaker 1: I think so. Uh. And research shows that if you

698
00:33:30,280 --> 00:33:33,240
Speaker 1: bought an item with cash, that you place even more

699
00:33:33,360 --> 00:33:36,040
Speaker 1: value on it. Uh. And so, practically speaking, in our

700
00:33:36,040 --> 00:33:38,320
Speaker 1: in our day to day lives, the endowment effect can

701
00:33:38,320 --> 00:33:41,520
Speaker 1: impact our ability to have a peaceful home that's clear

702
00:33:41,600 --> 00:33:44,360
Speaker 1: of clutter and junk. It keeps us from doing something

703
00:33:44,440 --> 00:33:47,080
Speaker 1: simple like giving away possessions that we no longer use

704
00:33:47,320 --> 00:33:50,000
Speaker 1: or selling those possessions. But the endowment effect can also

705
00:33:50,120 --> 00:33:53,640
Speaker 1: cause us to become irrational and believing that the thing

706
00:33:53,680 --> 00:33:56,400
Speaker 1: that we own is worth more than the market says

707
00:33:56,440 --> 00:33:59,040
Speaker 1: it is. And so we're gonna tie this again to investing,

708
00:33:59,080 --> 00:34:02,760
Speaker 1: because you might have a fund in your portfolio. Uh,

709
00:34:02,960 --> 00:34:07,160
Speaker 1: maybe that you purchased a while ago and since then, though,

710
00:34:07,240 --> 00:34:09,799
Speaker 1: you've learned the error of your ways and you realize that,

711
00:34:09,840 --> 00:34:12,440
Speaker 1: oh my gosh, the expense ratio on this thing is

712
00:34:12,640 --> 00:34:15,640
Speaker 1: one point one, which is ridiculous. Nobody should be paying

713
00:34:15,640 --> 00:34:18,600
Speaker 1: that high for any type of index or mutual fund

714
00:34:18,640 --> 00:34:21,319
Speaker 1: out there. But because you already own it's you are

715
00:34:21,400 --> 00:34:24,719
Speaker 1: hesitant and actually selling that thing off because well, it's

716
00:34:24,760 --> 00:34:28,319
Speaker 1: my expensive mutual fund, it's within your portfolio. And we

717
00:34:28,360 --> 00:34:30,960
Speaker 1: have this attachment to things that are already in our possession,

718
00:34:31,120 --> 00:34:33,040
Speaker 1: and so this is an instance where you just need

719
00:34:33,080 --> 00:34:34,880
Speaker 1: to cut ties with that thing and let it go.

720
00:34:35,000 --> 00:34:36,640
Speaker 1: You know, the right thing that you need to do,

721
00:34:36,880 --> 00:34:39,239
Speaker 1: and we're here to give you that extra little kick,

722
00:34:39,320 --> 00:34:41,359
Speaker 1: that extra little nudge to get you to actually sell

723
00:34:41,400 --> 00:34:43,880
Speaker 1: it back to the nudge. I like that. Yeah, this

724
00:34:43,920 --> 00:34:46,120
Speaker 1: could take place to Matt. Let's say someone received an

725
00:34:46,120 --> 00:34:50,640
Speaker 1: inheritance and that inheritance has sentimental value. Let's say it's

726
00:34:50,760 --> 00:34:55,040
Speaker 1: a home from a deceased relative. Well, what you think

727
00:34:55,040 --> 00:34:57,400
Speaker 1: it's worth in your mind because you're attached to that

728
00:34:57,440 --> 00:35:00,399
Speaker 1: place can maybe have childhood memories and at home. Well,

729
00:35:00,520 --> 00:35:03,760
Speaker 1: you think it's worth four hundred thousand, but this estimate

730
00:35:03,800 --> 00:35:06,719
Speaker 1: says it's worth two eight five, And you just have

731
00:35:06,800 --> 00:35:10,000
Speaker 1: the hardest time believing that that's what it's worth because

732
00:35:10,160 --> 00:35:12,400
Speaker 1: you value it more highly. And it's okay that that

733
00:35:12,440 --> 00:35:15,400
Speaker 1: home is important to you, but it certainly doesn't mean

734
00:35:15,440 --> 00:35:16,680
Speaker 1: if you put it on the open market that's what

735
00:35:16,680 --> 00:35:19,799
Speaker 1: you rusted for exactly. It's okay that to you it

736
00:35:19,840 --> 00:35:22,280
Speaker 1: means more to you because of the sentimental middle reasons,

737
00:35:22,560 --> 00:35:24,560
Speaker 1: and for that reason that you decide not to sell

738
00:35:24,600 --> 00:35:26,920
Speaker 1: it for two eight five, because you know what that

739
00:35:27,040 --> 00:35:30,479
Speaker 1: extra hundred hundred k plus that means more to you

740
00:35:30,920 --> 00:35:33,680
Speaker 1: in a sentimental way than it does to somebody else

741
00:35:33,840 --> 00:35:35,800
Speaker 1: when it comes to their money. Yeah, okay. On the

742
00:35:35,800 --> 00:35:38,040
Speaker 1: same note, let's talk about the sunk cost fallacy, because

743
00:35:38,040 --> 00:35:40,960
Speaker 1: that that really has a lot of similarities. It's not

744
00:35:41,000 --> 00:35:44,040
Speaker 1: too far removed really from the endowment effect. It's it's

745
00:35:44,040 --> 00:35:47,000
Speaker 1: where we have a similar hardship getting rid of something

746
00:35:47,280 --> 00:35:50,200
Speaker 1: if we've already spent money to head in that direction.

747
00:35:50,400 --> 00:35:52,759
Speaker 1: And Matt h just to give a local example here,

748
00:35:52,800 --> 00:35:56,440
Speaker 1: this makes me think of plant votal in Georgia. We're

749
00:35:56,480 --> 00:35:59,040
Speaker 1: building a nuclear power plant right now, which is great.

750
00:35:59,160 --> 00:36:01,160
Speaker 1: I'm kind of was cool with that when they announced it.

751
00:36:01,160 --> 00:36:04,040
Speaker 1: I'm like, great, nuclear power. I think that's a good thing.

752
00:36:04,200 --> 00:36:08,080
Speaker 1: But what's not great is how expensive this project has become.

753
00:36:08,320 --> 00:36:10,600
Speaker 1: It seems like every year the price tag has risen

754
00:36:10,680 --> 00:36:13,800
Speaker 1: substantially on this project, and the timeline has been extended

755
00:36:14,080 --> 00:36:17,240
Speaker 1: further and further out, and so we're talking about years

756
00:36:17,280 --> 00:36:20,560
Speaker 1: and years of delays and probably double the cost. But

757
00:36:20,640 --> 00:36:23,200
Speaker 1: the sunk cost fallacy has been at play in this

758
00:36:23,360 --> 00:36:26,520
Speaker 1: every time they've extended the deadline and increase the budget.

759
00:36:26,719 --> 00:36:29,680
Speaker 1: Because there have been many occasions along the way where

760
00:36:29,680 --> 00:36:31,400
Speaker 1: it made sense just to cut your losses and to

761
00:36:31,480 --> 00:36:34,920
Speaker 1: stop building this plant. But that never happens, and that

762
00:36:34,960 --> 00:36:37,719
Speaker 1: happens all the time in our own lives, to where

763
00:36:37,760 --> 00:36:40,480
Speaker 1: we fail to cut bait, where we fail to retreat

764
00:36:40,520 --> 00:36:42,480
Speaker 1: from the course we're on, because we've already put money

765
00:36:42,480 --> 00:36:44,319
Speaker 1: in that direction, and it makes it just that much

766
00:36:44,360 --> 00:36:46,880
Speaker 1: harder for us to make the pivot that needs to

767
00:36:46,880 --> 00:36:49,799
Speaker 1: be made. That's right, and when you should be cutting bait,

768
00:36:49,840 --> 00:36:52,359
Speaker 1: hopefully you're not doubling down and you know, sinking even

769
00:36:52,400 --> 00:36:55,120
Speaker 1: more money into it in Vegas when you've lost a

770
00:36:55,200 --> 00:36:57,040
Speaker 1: Hunter Bucks and you're like, I'm gonna make it back,

771
00:36:57,120 --> 00:36:58,799
Speaker 1: come back to the A t M. I'm gonna double down,

772
00:36:58,840 --> 00:37:01,399
Speaker 1: and it's like, how often is that end? Well? Yeah, man,

773
00:37:01,480 --> 00:37:03,120
Speaker 1: and let's go ahead, and now gets the ike effect

774
00:37:03,160 --> 00:37:06,600
Speaker 1: you hinted at this earlier. The Ikea effect is really similar.

775
00:37:07,239 --> 00:37:10,600
Speaker 1: When you've invested not only money but labor into something,

776
00:37:10,960 --> 00:37:13,640
Speaker 1: your perceived value of that item then goes up even more.

777
00:37:14,200 --> 00:37:16,240
Speaker 1: Uh So, if you spend all that time putting putting

778
00:37:16,239 --> 00:37:18,800
Speaker 1: together a wardrobe. This is why it's called the i

779
00:37:18,880 --> 00:37:21,360
Speaker 1: ke effect, right, because it takes time to put together

780
00:37:21,400 --> 00:37:25,359
Speaker 1: that dresser, blood, sweat, tears and cuss words. It's not

781
00:37:25,520 --> 00:37:28,120
Speaker 1: gonna be just the money that it costs to purchase

782
00:37:28,160 --> 00:37:29,920
Speaker 1: that item that's at stake. It's the time that you

783
00:37:30,040 --> 00:37:32,719
Speaker 1: invested into it as well. And so you know, we

784
00:37:32,760 --> 00:37:35,120
Speaker 1: see this with media that we can see as as well.

785
00:37:35,400 --> 00:37:37,600
Speaker 1: Like you know, you might have started reading a book,

786
00:37:37,800 --> 00:37:39,600
Speaker 1: or you know, maybe you started a movie that ends

787
00:37:39,680 --> 00:37:42,279
Speaker 1: up being boring, um, but you keep going because you

788
00:37:42,280 --> 00:37:44,440
Speaker 1: feel like you had to follow through on your commitment.

789
00:37:45,000 --> 00:37:47,480
Speaker 1: This is another kind of more personal example that that

790
00:37:47,480 --> 00:37:50,040
Speaker 1: happens to folks all the time. Instead of cutting our

791
00:37:50,120 --> 00:37:52,680
Speaker 1: losses and taking the hit, we continue to hope and

792
00:37:52,760 --> 00:37:54,560
Speaker 1: you know, we pray that things are going to turn

793
00:37:54,560 --> 00:37:57,520
Speaker 1: around and what you know, While like you shouldn't alter

794
00:37:57,560 --> 00:38:00,520
Speaker 1: your attitude towards investing because of a down a month

795
00:38:00,560 --> 00:38:04,080
Speaker 1: in the market, like you also shouldn't ignore new information

796
00:38:04,120 --> 00:38:07,040
Speaker 1: when it comes along just because, uh, it might cause

797
00:38:07,040 --> 00:38:09,359
Speaker 1: you to shift your behavior. You want to make sure

798
00:38:09,480 --> 00:38:11,520
Speaker 1: that you aren't being swayed by the fact that you've

799
00:38:11,520 --> 00:38:14,719
Speaker 1: already dumped a ton of time into something that is

800
00:38:14,760 --> 00:38:18,200
Speaker 1: not ending up to be profitable. I guess one example

801
00:38:18,239 --> 00:38:21,279
Speaker 1: of this, Matt could be someone researching the purchase of

802
00:38:21,280 --> 00:38:24,480
Speaker 1: a new car and they've spent hours and hours on

803
00:38:25,160 --> 00:38:27,960
Speaker 1: multiple nights for a month and a half and now

804
00:38:27,960 --> 00:38:30,759
Speaker 1: they realize, wait a second, this doesn't really fit into

805
00:38:30,800 --> 00:38:32,839
Speaker 1: my budget in the same way. But if I don't

806
00:38:32,880 --> 00:38:34,919
Speaker 1: go ahead and buy this car, this is a bunch

807
00:38:34,920 --> 00:38:37,400
Speaker 1: of wasted time and um, and I'm not getting that

808
00:38:37,480 --> 00:38:39,759
Speaker 1: time back. But that would be an example of that

809
00:38:39,800 --> 00:38:42,120
Speaker 1: ikea effect, where you have spent your time, your effort,

810
00:38:42,120 --> 00:38:45,680
Speaker 1: your labor to do this research, but ultimately don't let

811
00:38:45,719 --> 00:38:48,239
Speaker 1: that sway your decision. Um. If it's not a good

812
00:38:48,239 --> 00:38:50,840
Speaker 1: financial decision, don't do it. So those are the some

813
00:38:50,920 --> 00:38:53,719
Speaker 1: of the more popular behavioral finance terms, some of the

814
00:38:53,719 --> 00:38:56,840
Speaker 1: ones we found most interesting that influenced the ways that

815
00:38:56,960 --> 00:39:00,360
Speaker 1: we spend and think about money, the ways that we vest,

816
00:39:00,719 --> 00:39:03,640
Speaker 1: and they can have a really big impact on our

817
00:39:03,640 --> 00:39:06,200
Speaker 1: ability to grow wealth for our future, to curb our

818
00:39:06,239 --> 00:39:09,920
Speaker 1: own spending decisions if we're not careful. And so what

819
00:39:09,960 --> 00:39:12,000
Speaker 1: do we do about this? Right, We've we've talked about

820
00:39:12,040 --> 00:39:14,440
Speaker 1: that a little bit, but there is the problem that

821
00:39:14,440 --> 00:39:17,120
Speaker 1: there are so many different behavioral terms and it might

822
00:39:17,120 --> 00:39:19,760
Speaker 1: be difficult to recall or to name them in the moment,

823
00:39:20,040 --> 00:39:23,560
Speaker 1: like when you're experiencing over confidence. Calling it out at

824
00:39:23,600 --> 00:39:25,919
Speaker 1: the same time is difficult to do. But we would

825
00:39:25,960 --> 00:39:28,280
Speaker 1: say that there are some steps that you can take

826
00:39:28,520 --> 00:39:32,320
Speaker 1: to keep you from falling into these default ways of behaving,

827
00:39:32,719 --> 00:39:35,160
Speaker 1: and we just have like a few suggestions to make.

828
00:39:35,160 --> 00:39:38,360
Speaker 1: The first one is to hit pause, don't make decisions

829
00:39:38,400 --> 00:39:42,279
Speaker 1: too hastily, and instead ask yourself why it is you

830
00:39:42,320 --> 00:39:45,279
Speaker 1: feel the way you do, or why is it that

831
00:39:45,440 --> 00:39:47,800
Speaker 1: you're wanting to take that action. We say go another

832
00:39:47,920 --> 00:39:50,799
Speaker 1: level deeper because you might find some of these biases

833
00:39:50,880 --> 00:39:54,000
Speaker 1: at work, and sometimes all it takes is hitting that

834
00:39:54,040 --> 00:39:57,640
Speaker 1: pause button and taking a step back to think, removing

835
00:39:57,680 --> 00:40:00,920
Speaker 1: yourself from the immediate temptation that your face seeing, so

836
00:40:01,000 --> 00:40:04,000
Speaker 1: that you can make a better decision. Totally, Man, I

837
00:40:04,239 --> 00:40:06,440
Speaker 1: think that this is the number number one top thing

838
00:40:06,440 --> 00:40:09,399
Speaker 1: we need to do, hitting pause and asking ourselves why,

839
00:40:09,480 --> 00:40:12,160
Speaker 1: Like basically, before you do anything with your money, why,

840
00:40:12,440 --> 00:40:14,200
Speaker 1: Like that is the question you need to ask yourself

841
00:40:14,239 --> 00:40:17,759
Speaker 1: because regardless of what arena we're talking about, I think

842
00:40:18,000 --> 00:40:21,200
Speaker 1: you asking why do I want to do this? Can

843
00:40:21,280 --> 00:40:23,160
Speaker 1: cause you to make a better decision? Right. And so,

844
00:40:23,239 --> 00:40:26,120
Speaker 1: for instance, when it comes to spending money, why do

845
00:40:26,160 --> 00:40:28,840
Speaker 1: I want this thing? Is it something that is truly necessary?

846
00:40:28,880 --> 00:40:31,080
Speaker 1: Or do I just want it? And it's okay to

847
00:40:31,120 --> 00:40:32,640
Speaker 1: buy something if you just want it, but do you

848
00:40:33,040 --> 00:40:34,960
Speaker 1: really want it or do you just kind of want

849
00:40:34,960 --> 00:40:38,120
Speaker 1: it because you're bored? Right? And even something more wholesome

850
00:40:38,320 --> 00:40:40,759
Speaker 1: like saving money, Okay, why is it that you want

851
00:40:40,800 --> 00:40:43,160
Speaker 1: to save that money? Why not? Instead are you not

852
00:40:43,280 --> 00:40:45,400
Speaker 1: investing that money? Like? Instead, why aren't you putting that

853
00:40:45,400 --> 00:40:49,320
Speaker 1: money at quote unquote risk and actually growing it? Because

854
00:40:49,320 --> 00:40:51,040
Speaker 1: the real risk, as we all know, is if your

855
00:40:51,040 --> 00:40:53,000
Speaker 1: money just sits there and your savings account and it's

856
00:40:53,040 --> 00:40:56,919
Speaker 1: getting eaten away by inflation. But again questioning why unless Okay,

857
00:40:56,920 --> 00:40:58,719
Speaker 1: so I'm going through some of the different different ways

858
00:40:58,719 --> 00:41:01,280
Speaker 1: we can ask ourselves why invest thing? If you feel

859
00:41:01,280 --> 00:41:04,640
Speaker 1: the urge to invest money, that's a great thing. But oftentimes,

860
00:41:04,920 --> 00:41:06,719
Speaker 1: you know, we might be tempted to put our money

861
00:41:06,760 --> 00:41:10,680
Speaker 1: towards something that is more speculative. And so the latest

862
00:41:10,760 --> 00:41:13,640
Speaker 1: meme stock or different crypto coin that's come that's coming along,

863
00:41:13,880 --> 00:41:15,719
Speaker 1: and you think, oh, there's a chance I can with

864
00:41:15,760 --> 00:41:18,200
Speaker 1: a hundred bucks, I could buy like ten million of

865
00:41:18,239 --> 00:41:21,040
Speaker 1: these coins. And what if I had ten million of

866
00:41:21,040 --> 00:41:24,240
Speaker 1: a coin that's worth just a thousand bucks, that would

867
00:41:24,239 --> 00:41:26,080
Speaker 1: be I don't know what's the mouth on that. At

868
00:41:26,120 --> 00:41:29,200
Speaker 1: three zeros, that would be a lot of money. But

869
00:41:29,719 --> 00:41:32,319
Speaker 1: like do you need that money? Like, think through the

870
00:41:32,440 --> 00:41:35,360
Speaker 1: reasons behind the actions that you want to take. We

871
00:41:35,400 --> 00:41:37,840
Speaker 1: think that that definitely could lead you to making some

872
00:41:38,000 --> 00:41:40,680
Speaker 1: better decisions. Yeah. Yeah, taking a step back, getting out

873
00:41:40,680 --> 00:41:42,960
Speaker 1: of the emotional state that you're in is helpful and

874
00:41:42,960 --> 00:41:46,800
Speaker 1: and another way to combat some of those behavioral tendencies

875
00:41:46,840 --> 00:41:49,680
Speaker 1: that we have to make, you know, irrational money decisions

876
00:41:49,719 --> 00:41:53,080
Speaker 1: to make mistakes is to get input from others. Even

877
00:41:53,160 --> 00:41:55,200
Speaker 1: if you have that level of awareness to hit the

878
00:41:55,200 --> 00:41:57,480
Speaker 1: pause button and to say, oh, you know, I wanted

879
00:41:57,480 --> 00:41:59,120
Speaker 1: to buy the thing, I'm taking a forty eight hour

880
00:41:59,200 --> 00:42:02,440
Speaker 1: rule and I am waiting to actually hit purchase until then.

881
00:42:02,480 --> 00:42:04,279
Speaker 1: And you know, you might forget about it altogether in

882
00:42:04,320 --> 00:42:06,320
Speaker 1: those forty hours and forget that you were trying to

883
00:42:06,320 --> 00:42:08,360
Speaker 1: buy it in the first place. But it's important to

884
00:42:08,520 --> 00:42:13,160
Speaker 1: involve other smart folks in difficult money decisions, probably ones

885
00:42:13,200 --> 00:42:16,480
Speaker 1: that go beyond that one random purchase. But this includis

886
00:42:16,480 --> 00:42:19,319
Speaker 1: talking about a car or a house. Yeah, something that's

887
00:42:19,360 --> 00:42:23,399
Speaker 1: like substantial or timeshare yes, uh yeah, you're just your

888
00:42:23,400 --> 00:42:26,719
Speaker 1: ten dollar Amazon purchase. Probably not. But for those bigger purchases,

889
00:42:26,960 --> 00:42:30,279
Speaker 1: involving other people is helpful, and this includes people that

890
00:42:30,320 --> 00:42:32,719
Speaker 1: you don't always agree with. The goal, we would say,

891
00:42:32,760 --> 00:42:34,960
Speaker 1: is to get more food for thought, not just to

892
00:42:35,000 --> 00:42:38,840
Speaker 1: have your preconceived notions confirmed. And so yeah, that combination

893
00:42:38,880 --> 00:42:41,600
Speaker 1: of time and wisdom from other people goes a long

894
00:42:41,680 --> 00:42:45,200
Speaker 1: way to ensure that you're not just convincing yourself that

895
00:42:45,320 --> 00:42:48,520
Speaker 1: what you're inclined to do is actually best for you.

896
00:42:48,520 --> 00:42:52,680
Speaker 1: You're getting a third party opinion, hopefully from someone who

897
00:42:52,719 --> 00:42:55,480
Speaker 1: knows what they're talking about and who can help provide

898
00:42:55,880 --> 00:42:58,279
Speaker 1: maybe a little bit of Devil's advocate for you like that,

899
00:42:58,320 --> 00:43:00,920
Speaker 1: it's going to help you make a better, more informed decision.

900
00:43:00,960 --> 00:43:03,040
Speaker 1: Even if you continue forward down the path that you're

901
00:43:03,040 --> 00:43:05,040
Speaker 1: going forward, maybe you'll do it in a different way.

902
00:43:05,120 --> 00:43:07,080
Speaker 1: That's right, And we would also recommend that you implement

903
00:43:07,160 --> 00:43:09,960
Speaker 1: some technology that's going to help you out. Automation is

904
00:43:10,040 --> 00:43:12,440
Speaker 1: going to help you to achieve some of the important

905
00:43:12,480 --> 00:43:15,160
Speaker 1: stuff in your life. The more that you can put

906
00:43:15,200 --> 00:43:17,920
Speaker 1: the good decisions on autopilot, the less of your brains

907
00:43:18,080 --> 00:43:21,080
Speaker 1: resources that you'll need to use UH in that decision

908
00:43:21,080 --> 00:43:23,680
Speaker 1: making process. It is worth noting that a decent chunk

909
00:43:23,680 --> 00:43:25,919
Speaker 1: of our you know, different technology that's out there isn't

910
00:43:26,000 --> 00:43:29,120
Speaker 1: aimed at helping us. But there are some helpful apps

911
00:43:29,120 --> 00:43:31,799
Speaker 1: and different sites out there who are trying to help.

912
00:43:32,000 --> 00:43:35,160
Speaker 1: Specifically Acorns, they will round up when you spend some

913
00:43:35,200 --> 00:43:37,279
Speaker 1: money to help you to save money. Why napp and

914
00:43:37,360 --> 00:43:39,600
Speaker 1: Capital they are both the other apps out there that

915
00:43:39,680 --> 00:43:43,440
Speaker 1: incorporate elements of behavioral finance to help you to achieve

916
00:43:43,560 --> 00:43:46,200
Speaker 1: your goals. You don't have to get there just through

917
00:43:46,400 --> 00:43:49,359
Speaker 1: the use of just raw self discipline where it's just

918
00:43:49,560 --> 00:43:53,239
Speaker 1: like you and the desert and the sun, where you're

919
00:43:53,280 --> 00:43:57,080
Speaker 1: just like trekking across you know, the stand. It's just like, well,

920
00:43:57,360 --> 00:44:00,600
Speaker 1: you could like catch an uber and get there and survive.

921
00:44:01,280 --> 00:44:03,320
Speaker 1: Like there are ways to use technologyes. I don't know,

922
00:44:03,320 --> 00:44:05,120
Speaker 1: I shouldn't have used that example, but there's there are

923
00:44:05,120 --> 00:44:07,839
Speaker 1: ways that we can use technology. And it's like, we

924
00:44:07,880 --> 00:44:10,000
Speaker 1: don't want you to make your life intentionally hard to

925
00:44:10,040 --> 00:44:11,839
Speaker 1: super pick you up in the Gobi desert or well,

926
00:44:11,880 --> 00:44:13,360
Speaker 1: I mean if you're on the road, if you're like

927
00:44:13,680 --> 00:44:15,560
Speaker 1: a picture let root sixty six kind of things, like

928
00:44:15,640 --> 00:44:17,600
Speaker 1: you don't have to just like cut straight across the desert.

929
00:44:17,880 --> 00:44:20,560
Speaker 1: Utilize the technology that is at our fingertips that's gonna

930
00:44:20,560 --> 00:44:22,719
Speaker 1: help you to achieve the goals that you want to achieve. Yeah,

931
00:44:22,760 --> 00:44:25,480
Speaker 1: Like one of my favorite robo investing platforms, Betterment. They

932
00:44:25,480 --> 00:44:28,160
Speaker 1: do a great job at like holding people's hands when

933
00:44:28,160 --> 00:44:30,319
Speaker 1: they're trying to make a decision whether they want to

934
00:44:30,360 --> 00:44:33,720
Speaker 1: sell or buy. And so yeah, there are these technologies

935
00:44:33,800 --> 00:44:36,359
Speaker 1: now that incorporate these elements of behavioral finance that can

936
00:44:36,360 --> 00:44:39,120
Speaker 1: help us make better decisions. And so yeah, I agree

937
00:44:39,160 --> 00:44:41,759
Speaker 1: with that one. Matt last tip for people is to

938
00:44:41,920 --> 00:44:46,400
Speaker 1: reward yourself for making progress, because another element of behavioral

939
00:44:46,400 --> 00:44:50,279
Speaker 1: finances that immediate positive rewards have a huge impact on

940
00:44:50,320 --> 00:44:54,800
Speaker 1: our desire to continue the action that resulted in that report.

941
00:44:54,920 --> 00:44:57,280
Speaker 1: So if you can give yourself some sort of treat

942
00:44:57,520 --> 00:45:00,520
Speaker 1: for doing good things, you're likely to continue to do

943
00:45:00,640 --> 00:45:03,600
Speaker 1: those good things. We would say, don't reward yourself for

944
00:45:03,800 --> 00:45:07,239
Speaker 1: arbitrary things like who the market did great today and

945
00:45:07,320 --> 00:45:10,640
Speaker 1: my you know, my holdings are up three percent. Well,

946
00:45:11,040 --> 00:45:13,799
Speaker 1: that's not something you actually had control over. Instead, give

947
00:45:13,840 --> 00:45:17,799
Speaker 1: yourself maybe a reward for thoughtout behaviors, like increasing the

948
00:45:17,840 --> 00:45:21,239
Speaker 1: amount that you're contributing to retirement instead. That's something you

949
00:45:21,440 --> 00:45:23,360
Speaker 1: can do. You can have control over the amount of

950
00:45:23,360 --> 00:45:25,279
Speaker 1: money that's going in that account. Yeah. Man, you know

951
00:45:25,320 --> 00:45:28,000
Speaker 1: what's interesting about rewarding yourself for good behavior is that

952
00:45:28,239 --> 00:45:31,200
Speaker 1: the different behavioral finance terms that we've already talked about,

953
00:45:31,520 --> 00:45:34,200
Speaker 1: they are, in and of themselves, their own reward. The

954
00:45:34,239 --> 00:45:36,279
Speaker 1: reason that we do them is because our body, our

955
00:45:36,320 --> 00:45:39,160
Speaker 1: minds whatever they want to do those things. It's so

956
00:45:39,280 --> 00:45:43,480
Speaker 1: we don't need to necessarily reward ourselves for exhibiting the

957
00:45:43,520 --> 00:45:45,640
Speaker 1: halo effect. It's like, well, no, that's just naturally what

958
00:45:45,680 --> 00:45:49,400
Speaker 1: your body does, whereas taking the difficult steps and being disciplined,

959
00:45:49,560 --> 00:45:53,560
Speaker 1: say about saving war towards retirement. When you're first getting started,

960
00:45:53,560 --> 00:45:55,920
Speaker 1: you're not necessarily going to feel good about that. You

961
00:45:56,000 --> 00:45:57,920
Speaker 1: know that you should be doing that thing, but there

962
00:45:58,000 --> 00:46:01,720
Speaker 1: isn't this natural high that comes along with that unless

963
00:46:01,840 --> 00:46:03,880
Speaker 1: you've been able to rewire the way you think, and

964
00:46:03,880 --> 00:46:06,719
Speaker 1: that's essentially what we're talking about doing here. Uh. And

965
00:46:06,719 --> 00:46:09,160
Speaker 1: then hopefully over time you do get a natural high.

966
00:46:09,239 --> 00:46:11,399
Speaker 1: Every time you invest some more money in the market,

967
00:46:11,440 --> 00:46:13,719
Speaker 1: you feel good about yourself because you know what that

968
00:46:13,840 --> 00:46:16,120
Speaker 1: is eventually going to lead to. Uh. And these small

969
00:46:16,160 --> 00:46:18,560
Speaker 1: rewards go a long way and getting us to that point,

970
00:46:18,680 --> 00:46:20,800
Speaker 1: yeah for sure. Yeah, so we would say, like, money

971
00:46:20,880 --> 00:46:24,200
Speaker 1: is this complicated thing, right, and humans are complicated too.

972
00:46:24,239 --> 00:46:26,240
Speaker 1: But we wanted to cover some of the important research

973
00:46:26,280 --> 00:46:28,759
Speaker 1: that's been performed over the last few decades because it's

974
00:46:28,760 --> 00:46:35,640
Speaker 1: really provided helpful insights into our quirky human tendencies towards irrationality. Uh.

975
00:46:35,680 --> 00:46:38,319
Speaker 1: And yeah, so just being cognizant of those tendencies goes

976
00:46:38,320 --> 00:46:41,160
Speaker 1: a long way. And but even beyond that, there are

977
00:46:41,160 --> 00:46:43,560
Speaker 1: things that we can do to combat our own worst

978
00:46:43,719 --> 00:46:47,400
Speaker 1: intuitions that are gonna lead to improvement as individuals, and

979
00:46:47,400 --> 00:46:49,000
Speaker 1: it's gonna help us be better. And when it comes

980
00:46:49,000 --> 00:46:51,799
Speaker 1: to saving, spending and investing our money, You're not gonna

981
00:46:51,840 --> 00:46:54,120
Speaker 1: be perfect along the way. You're gonna make mistakes and

982
00:46:54,160 --> 00:46:57,239
Speaker 1: you're gonna find yourself after the fact, saying you know what,

983
00:46:57,480 --> 00:46:58,719
Speaker 1: that was the one I sup come to. I was

984
00:46:58,760 --> 00:47:01,960
Speaker 1: over confident in that moment or the sun cost fallacy

985
00:47:02,120 --> 00:47:05,080
Speaker 1: set in and I held onto that thing that I

986
00:47:05,080 --> 00:47:08,000
Speaker 1: should have sold. But you can avoid some of the

987
00:47:08,000 --> 00:47:10,799
Speaker 1: worst kinds of reactions that lead to financial harm just

988
00:47:10,840 --> 00:47:15,239
Speaker 1: by realizing these things exist and then implementing some of

989
00:47:15,360 --> 00:47:18,120
Speaker 1: the tips that we suggested. That's right, dude, we are

990
00:47:18,239 --> 00:47:21,000
Speaker 1: irrational beings. And the more we realized that, I think,

991
00:47:21,000 --> 00:47:23,279
Speaker 1: the better decisions we're gonna make. Let's go ahead and

992
00:47:23,280 --> 00:47:25,360
Speaker 1: get back to our beer. This episode, you and I

993
00:47:25,520 --> 00:47:29,560
Speaker 1: enjoyed a volume integral. This is by Pontoon Brewing in

994
00:47:29,600 --> 00:47:33,120
Speaker 1: collaboration with Apology Brewing, and dude, this is the first

995
00:47:33,120 --> 00:47:35,960
Speaker 1: time we've ever had a Pontoon beer on the show.

996
00:47:36,120 --> 00:47:37,880
Speaker 1: I'm not even sure if I've ever had one. I

997
00:47:38,040 --> 00:47:41,439
Speaker 1: R L. Pontoon. They are based out of Atlanta. Uh,

998
00:47:41,560 --> 00:47:43,959
Speaker 1: this is a local brewery for us, and I'm glad

999
00:47:43,960 --> 00:47:46,040
Speaker 1: that we're able to finally get around to enjoying one

1000
00:47:46,040 --> 00:47:47,879
Speaker 1: of the beers. But what we were thoughts on this one, Yeah,

1001
00:47:47,920 --> 00:47:49,800
Speaker 1: well we only got to enjoy it thanks to listener

1002
00:47:49,800 --> 00:47:52,360
Speaker 1: to the show, Miguel. So thank you, Miguel. Thanks Miguel.

1003
00:47:52,719 --> 00:47:55,520
Speaker 1: And yeah, this beer I thought was really tasty. Again,

1004
00:47:55,560 --> 00:47:57,360
Speaker 1: I think I'm the same. I don't think I've ever

1005
00:47:57,440 --> 00:48:01,680
Speaker 1: had a Pontoon brewing beer and and this one was delicious,

1006
00:48:01,719 --> 00:48:04,080
Speaker 1: Like it was kind of everything I expect out of

1007
00:48:04,600 --> 00:48:07,239
Speaker 1: a hazy I PA these days. And it wasn't too much.

1008
00:48:07,360 --> 00:48:10,200
Speaker 1: It was sweet, but that overly sweet. It was kind

1009
00:48:10,200 --> 00:48:12,680
Speaker 1: of like striking that right balance for me. I really

1010
00:48:12,719 --> 00:48:14,400
Speaker 1: enjoyed it. So you want you want to hear one

1011
00:48:14,400 --> 00:48:16,480
Speaker 1: of my weird tasting notes. Yeah? Please? Okay. You know

1012
00:48:16,600 --> 00:48:18,280
Speaker 1: when you do it all a bunch on a page

1013
00:48:18,360 --> 00:48:21,880
Speaker 1: and there's just a lot of ballpoint pen ink, it

1014
00:48:21,920 --> 00:48:25,120
Speaker 1: has a certain smell. It smells like ink. Right, I

1015
00:48:25,160 --> 00:48:28,160
Speaker 1: felt like this had I don't know, it's weird to say,

1016
00:48:28,200 --> 00:48:32,120
Speaker 1: but it had notes of ballpoint pen ink. But here's

1017
00:48:32,160 --> 00:48:35,239
Speaker 1: the best part. I liked it so cantoon is not

1018
00:48:35,280 --> 00:48:38,440
Speaker 1: calling you to write their pan descriptions anytime soon. It

1019
00:48:38,680 --> 00:48:41,799
Speaker 1: tastes like even dooling on a page and then you

1020
00:48:41,880 --> 00:48:43,400
Speaker 1: sniffed it. I don't know, it's it's just got a

1021
00:48:43,440 --> 00:48:46,480
Speaker 1: certain smell, and I agree. It totally had those double

1022
00:48:46,520 --> 00:48:49,719
Speaker 1: hazy I p A notes that you typically get right

1023
00:48:49,760 --> 00:48:51,920
Speaker 1: like so the hops and get that some of those

1024
00:48:51,960 --> 00:48:54,120
Speaker 1: orange juice notes. You get some of that betterness from

1025
00:48:54,160 --> 00:48:57,600
Speaker 1: the hops, but also maybe a touch of ink. I

1026
00:48:57,640 --> 00:49:01,080
Speaker 1: really liked it. But that's enough of me being a weirdo. Yeah,

1027
00:49:01,160 --> 00:49:02,839
Speaker 1: I'd like to get a highlight reel of all your

1028
00:49:02,960 --> 00:49:05,319
Speaker 1: weirdest beer reviews, because you tend to give a lot

1029
00:49:05,360 --> 00:49:07,759
Speaker 1: of abnormal ones. I would say, I like to give

1030
00:49:07,840 --> 00:49:10,839
Speaker 1: notes of things that you don't normally eat or drink. Yeah,

1031
00:49:11,680 --> 00:49:15,120
Speaker 1: but Miguel, seriously, we are incredibly thankful of your generosity.

1032
00:49:15,120 --> 00:49:17,480
Speaker 1: Thank you for donating this one to the show. We

1033
00:49:17,719 --> 00:49:19,640
Speaker 1: really appreciate it. And Joel, that's gonna be it for

1034
00:49:19,640 --> 00:49:22,520
Speaker 1: this episode. As always, listeners can find our show notes

1035
00:49:22,600 --> 00:49:24,799
Speaker 1: up on the website at how to money dot com.

1036
00:49:24,960 --> 00:49:27,160
Speaker 1: No doubt that's gonna do it for this episode. Until

1037
00:49:27,239 --> 00:49:29,759
Speaker 1: next time, Best Friends Out, Best Friends out