The human watches passively as other makes the important decisions
Our financial decision-making is uncontrolled. Strong intuitive forces dominate our decision power but our diminutive logical brain, which is focusing on finding logical rationalisations for historical decisions, immediately rationalizes the decisions.
- As regards investments in equity and various funds we select the ones we like but scramble to find widely accepted financial reasons for our emotional decision.
- Also professional money managers make uncontrolled intuitive decisions and then manipulate key calculus ingredients to reach the desired conclusion.
- When we go house hunting we may make a list of rational requirements but we are swept of our feet by emotions and in hindsight we construct new rational requirements to fit with the house we just bought.
- We follow the investments of the crowd, as we are scared to deviate from the mainstream.
- We sustain real estate bubbles and equity bubbles when we chase for the emotional kicks we get every time we sell and we move to the next target and look for the next kick.
- For public companies this means that they need to address all stakeholders and build wide and sustainable corporate reputation.
- In order to become better investors we need to construct formal decision systems that prevent emotional biases.
- As a private individual we need to study the market and ourselves to recognise when we follow others.