Money and People

P8　—　Why People Make Mistakes with Money

Mental habits, family, gifts, and aging. From 2,700 years of records and modern research, you will learn a procedure to understand your own tendencies.

Supervised by: Mitsuru Hayama　／　Reading time (main text): About 11 min (5,551 characters of text at 500 chars/min; exercises and readings not included)　／　Beyond the text: 6 exercises · 1 coins · 3 readings

What this course teaches you to do

• Be able to distinguish between the four concepts of loss aversion, present bias, herding, and susceptibility to authority, using examples from one's own behavior.
• Be able to explain bank runs and manias not as individual foolishness, but as herd movements created by the system.
• Can articulate whether money requested by family is a gift or a loan, and can verify the tax implications under their own country's system.
• Can cite one example each from their own country and another country of a mechanism for preparing for a future decline in decision-making capacity.

Lessons (8)

1. No one is rational — There are patterns to our mental biasesDeviations occur in the same direction. That is why they can be named as patterns and known in advance.
2. Avoiding a loss, missing a gain — Loss AversionThe pain of a loss is greater than the joy of a gain. The bias does not disappear. Know in advance the situations where it operates.
3. 10,000 Yen Today vs. 11,000 Yen in a Year — Present BiasThe self who plans and the self who acts are different people. Know the form of your temptation in advance.
4. Joining a Queue — How Systems Create Bank Runs and FrenziesJoining a queue is rational in the moment. The system creates the crowd. A system is also what prevents it.
5. Uniforms and Titles — A Weakness for AuthorityAuthority and urgency come as a pair. When you hear a title, do not stop verifying.
6. When family asks for money — Gifting as a tool of powerState whether it is a gift or a loan. Put it in writing. Check the tax thresholds in your own country.
7. Before your judgment changes — watching over aging and moneyDecisions can only be made before one's judgment changes. Who to entrust with what. Systems for this exist in every country.
8. Wealth and Well-being — From the Prohibition of Interest to a Measure of Financial Well-beingThe measure of well-being is not the amount, but whether one can endure and not worry. Biases remain. Know them and let them remain.

Readings (3)

• Line of Rings　South Korea　1998　Living room
  Section 4. The winter of 1998, when the resonance between broadcasting and the crowd led to solidarity rather than collapse. The same mechanism can be a poison or a medicine, depending on its direction.
• The coin of Kamakura　Japan　the 13th century　The storehouses of Kamakura
  Section 6. Kamakura vassals (*gokenin*) borrowed money by mortgaging their domains, and with each inheritance, their land holdings dwindled. An old form of family and debt.
• Gods and money　Overview: 2,700 years of the world　from the 7th century　Almsgiving and the Ban on Interest
  Section 8. The prohibition of interest and the obligation of almsgiving. The first textbook on money, which taught that wealth should circulate.

Assessment

6 exercises in this course (4 check, 0 compare, 2 written). Progress is recorded by self-assessment.