Now pay attention
The way we remember events can hurt our understanding of finances, an MIT study suggests. Because people typically focus selectively on what’s happening, they overestimate how bad things will become. The example used was inflation: “People tended to think past prices were much lower than they were, so they thought inflation was much higher,” the researchers say.
When making money choices, do you like to go with your gut feelings? If so, perhaps consider this: in experiments, people who believe they’re intuitive did no better than anyone else when following their hunches. An exception, however, might be when “intuition” is based on genuine, long-held knowledge of a topic, the researchers say.
Mind over money
How people actually think about money was once rarely considered by economists in their ivory towers, but times are changing, as UK-based economics professor Roger Farmer explains in this video. In fact, what we know about human psychology can help us understand broader economic events – and how to recover from financial crashes.