In our minds, it hurts less to try something and lose, compared with doing nothing and losing anyway. The problem is that our minds want to take action. In some situations, it can actually be better to do nothing at all. “Well, at least you tried.” This common consolation can be comforting and justified in many decisions, but not all. Given today’s higher prices, many of us may be starting to feel the pinch in our wallets and find ourselves exhibiting a scarcity mindset. In fact, research has found that scarcity can impact our neural mechanisms when making decisions, decreasing activity in the part of the brain that plays a role in goal-directed decision-making. This feeling can prompt us to make decisions we can later regret, which can then snowball, where one bad decision made under pressure can set up the stage for another. Scarcity MindsetĪ scarcity mindset occurs when we feel like we have less than we need, whether that be insufficient money, time, food, social connections, or other essentials. Our biases can arise at any time, but given today’s market environment, a few especially harmful biases can be scarcitymindset, action bias, and loss aversion. To make things worse, today’s current market environment can further exacerbate our biases, making them even more dangerous. These shortcuts may sound harmless, but they can have a drastic impact on our finances. Our minds tend to take shortcuts when making decisions, some of which lead us to the wrong conclusions and actions. However, as we all devour every article with the word “recession” in the title or watch every drop and rise in the market, it is important to acknowledge our biases.
During times like these, many investors may feel the need to understand these occurrences and the immediate impact they can have on their finances, and there are plenty of resources on this site to help navigate this ever-evolving situation.
0 kommentar(er)
