People's financial decisions aren't random. They're biased in the same direction.
That's why we can name these patterns and learn about them in advance.
Financial Decisions and Psychological Biases
Why People Make Mistakes with Money
We will consider how the desire to avoid loss and concerns about reputation influence shopping and financial decisions.
Time to read the text: about 11 min
The review questions are optional and not included in this time.
What you can read: the course opening and contents are free; the full text is for those who have purchased
After purchase, you can read the full text once your access starts.
Money and Mental Habits in 3 Minutes
1See it
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The pain of losing 10,000 yen is greater than the joy of finding 10,000 yen.
The habit of avoiding loss. Things you own seem more valuable.
100,000 yen now, or 110,000 yen in a year? The habit of choosing now.
The you who plans and the you who acts are two different people.
October 1907
The people who lined up weren't foolish. It was the right move at that moment.
Cash reserves are about 5% of deposits. The system creates a herd.
It's also the system that stops the herd. Deposit insurance and the lender of last resort.
This prevents rumors from becoming self-fulfilling prophecies.
Official titles and 'act now' often come as a pair.
A government agency will never tell you to send money to protect your money.
When giving money to family, say whether it's a gift or a loan, and write it down.
The basic exemption for Japan's gift tax is 1,100,000 yen per year.
Before your judgment changes, decide who you will entrust with what.
Voluntary guardianship. You can only decide while you're still able to decide.
The measure of happiness isn't the amount, but whether it's bearable and worry-free.
The habits remain. Live with them, knowing they exist.
2In numbers
74.2%
A 50/50 chance to gain 20,000 yen or lose 10,000 yen. People who answered 'I would not invest' (2022).
32.1%
People who said '100,000 yen now over 110,000 yen in a year' applies to them (2022).
3What would you do?
If you pay 100,000 yen, there's a 50/50 chance it will increase by 20,000 yen or decrease by 10,000 yen. Would you do it?
Pick one
I wouldn't
In a 2022 survey, 74.2% chose this. Refusing isn't wrong in itself. How you feel the pain of a loss is your own personal truth.
I would
Mathematically, this is a bet with an expected gain. Still, most people refuse. That's because the pain of loss feels greater than the joy of a gain.
The important thing is to notice when this habit is at work. The problem is when you're driven by the same habit in other situations without realizing it.
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What you will understand after this course
- 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.
More about this course
Course number: P8 — Why People Make Mistakes with Money
Supervised by: Mitsuru Hayama
Beyond the text: 6 exercises · 1 coins · 3 readings How reading times are calculated
You will also understand
- 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.
You can start this course without reading any other course.
Also worth reading, to see the connections (optional)
- Fraud Schemes and How to Protect Yourself
What you learn: Be able to apply the four signs of a scam (impersonating an organization, a problem or a prize, time pressure, a specific payment method) even to tactics seen for the first time.
Assessment
6 exercises in this course (4 check, 0 compare, 2 written). Progress is recorded by self-assessment.
The 8 chapters of this course
- 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.
- 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.
- 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.
- 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.
- Uniforms and Titles — A Weakness for AuthorityAuthority and urgency come as a pair. When you hear a title, do not stop verifying.
- 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.
- 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.
- 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: 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.
Read next
Deciphering Amounts, Percentages, and Statements →What you learn next: Can distinguish between nominal and real values, and can personally calculate the erosion of real value using the inflation rate.
Time to read the text: about 8 min ／ What you can read: the course opening and contents are free; the full text is for those who have purchased
Price
After purchase, the full courses, the illustrated books, every country’s story and the numismatics examination are open to you.
See the price →