Why people make dumb financial decisions on purpose
awealthofcommonsense.com
Why people make dumb financial decisions on purpose
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Re: Why people make dumb financial decisions on purpose
#2It's a catchy headline, but the "decisions" used as examples, aren't really "dumb" under the complete set of facts.
Really, what this is about is that the typical mathematics used to discuss a certain type of financial decision (mostly things like investments) uses an incomplete model that doesn't consider appropriately the actual values involved -- for example, failing to consider the wildly nonlinear curve of the marginal value of one dollar.
Re: Why people make dumb financial decisions on purpose
#3[deleted]
Re: Why people make dumb financial decisions on purpose
#4I don't know how that article is written without mentioning utility theory in economics and the concept of diminishing marginal utility of money and the risk aversion it implies. No need to even bring in behavioral economics.
Re: Why people make dumb financial decisions on purpose
#5It's a catchy headline, but the "decisions" used as examples, aren't really "dumb" under the complete set of facts. Really, what this is about is that the typical mathematics used to discuss a certain type of financial decision (mostly things like investments) uses an incomplete model that doesn't consider appropriately the actual values involved -- for example, failing to consider the wildly nonlinear curve of the m…
I think you just repeated the article's main argument.
Re: Why people make dumb financial decisions on purpose
#6"A 50% chance of winning $50 million would equate to an expected value of $25 million."
If you hit the green button you either get $50 million or 0$. Hitting the red button gives $1 million.
Unless you don't want $1 million or don't need it, you're going to hit the red button and not the green button.
Re: Why people make dumb financial decisions on purpose
#7It's a catchy headline, but the "decisions" used as examples, aren't really "dumb" under the complete set of facts. Really, what this is about is that the typical mathematics used to discuss a certain type of financial decision (mostly things like investments) uses an incomplete model that doesn't consider appropriately the actual values involved -- for example, failing to consider the wildly nonlinear curve of the m…
It's just a bad title. Choosing a guaranteed 1M instead of a 50% chance at 25M isn't particularly dumb.
"Dumb" decisions might be playing the lottery, or spending a windfall instead of saving it. But even those dumb decisions have reasonable psychological underpinnings for the person doing them.
Re: Why people make dumb financial decisions on purpose
#8You can witness people buying lotery scratch cards every day in the UK and wonder why people are so dumb given the odds of actually winning a big prize.
But then bear in mind that this person maybe has a big bill to pay and only £5 to their name, do they keep the £5 knowing that it isn't going make any difference or take a wild chance that will?
Re: Why people make dumb financial decisions on purpose
#9The rational behaviour is to make everyone press the green button and then give away a million dollars to anyone who didn't get a prize but the obvious problem is that no such thing happens. Instead of cooperating some people insist on getting the full 50 million dollars as if they deserve it and were destined to get the money while the plebs who didn't get anything also deserve to stay poor.
In other words, the problem is that humans are cruel to each other and peace of mind vs other cruel people is worth more than a higher reward.
Re: Why people make dumb financial decisions on purpose
#10You can witness people buying lotery scratch cards every day in the UK and wonder why people are so dumb given the odds of actually winning a big prize. But then bear in mind that this person maybe has a big bill to pay and only £5 to their name, do they keep the £5 knowing that it isn't going make any difference or take a wild chance that will?
I buy scratchy lottos sometimes (the cheap 1-2 dollar ones) because I find the act of scratching them to be tactilely pleasing. $1-2 for a couple minutes of fun and the possibility of winning enough to get myself some candy for 'free' is nice.