Why do we make bad decisions about money?
People are not fully rational and they make many choices that if they reflected upon, they would do differently. This is the key insight from today's lesson, as explained by the psychologist Daniel Kahneman, is that you need to take your emotions out of financial decision-making and instead take a broad view.
"Most of us tend to respond to gains and to losses," Kahneman says, "to changes that happen in our life." But we're better off framing things broadly: you win a few, you lose a few. Having very limited emotional responses to small gains and to small losses, Kahneman says, tends to induce better decision-making.