Money Disorders & You

The investments we make are often ‘coloured’ by the bias that we have in our mind. And there are various kinds of biases that often work as stumbling blocks to taking the right decisions. The article explains each such bias in order to help you work on your investments with clarity of sense and purpose

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Consider this case study: Ranbir Desai stays with his wife, Alia, and their three children in Mumbai. He always felt that his house was too small for his family. So he went to a priest and asked for advice. The priest advised him to invite his distant relatives. Although the advice seemed absurd and annoying, yet since it had been given by a sage, he followed it and did what was suggested. A week later Ranbir again approached the priest and complained how the suggestion had made the situation worse for him and was now intolerable. Ask them to leave, instructed the priest. Once again he followed the instruction religiously, and suddenly the house felt big. Nothing had materially changed but he was now relieved and happier. Why do we behave in such a way? The priest explained to him the decision-making process and how it can be improved if it is flawed.

Understanding Human Behaviour

The easy answer to this question is that forces of evolution have designed us to behave this way. Through years of evolution, our brain has learned some tasks to perform without much effort such as recognition of facial expression, which helps us to understand if someone is happy, sad or angry. This capability of the human brain is hardwired as it helps us to make decision quickly. But not everything that is hardwired or seems natural is useful. Our brain has failed to evolve with the same speed with which our environment has changed.