Behavioral Economics

By Mark Bertrang, The Creator of the Financialoscopy® on Thursday, May 20th 2021

There are three areas of our lives which can strongly affect our process of decision making.  They’re the herding instinct, our irrational optimism and simple inertia.

Herding is the social pressure we all feel to conform with one another.  We tend to make decision that align with those around us.  Recently, I was exposed to the idea that we are all the average of our five closest friends.  Our ideals tend to be group thoughts, not individual thoughts.  We get stuck, because we often simply assume that the group knows something, we don’t.

Irrational optimism is how we feel and envision our futures.  It’s a good bias to have, otherwise we probably wouldn’t even try to get out of bed in the morning.  Yet, it can become a problem if you think something bad won’t ever happen to you.  Why would you save for emergencies, draft a will, name beneficiaries or purchase medical, disability or life insurance if you thought your life would always be perfect?  Which makes me pause.  Do you have an emergency fund, a will and life insurance equal to your human life value?  If not, perhaps you’re too optimistic.

Inertia can be a profound blockage for future potential.  Many people feel discomfort when asking, who moved my cheese, as explained by the book of the same name.  Most of us are comfortable in the inertia mode of life, by simply doing nothing.  Let’s just keep things the same.  We’re happy with the way things are simply going along, right?  I remember how overwhelmed I was forty years ago when my wife and I purchased our first serious piece of furniture: a hide-a-bed couch.  I quickly realized that I would never be able to move, as I did when I was single with everything, I owned thrown into the back seat of my two-door Dodge Dart Swinger.  I needed to reframe my thinking, forever.  Every move thereafter involved a U-Haul.

Herding, Irrational Optimism and Inertia; how are behavioral economics affecting your life?


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