7 SECRETS TO MAXIMIZE YOUR WEALTH

Here's what science reveals about the hidden emotions that drive financial behavior-and how you can use them to build lifelong security.

- BY CHRIS TAYLOR

If you have ever held on too long to a losing investment, or bought a hot stock at what proved to be exactly the wrong time, or inadvertently kept paying recurring charges for an app or subscription you no longer use, you've been tripped up by what behavioral economists call cognitive biases. Plain English translation: Our brains are wired in ways that sometimes cause us to take actions that aren't good for our financial health.

In doing so, you are in good company—Nobel Prizewinning company, in fact.

That would be Daniel Kahneman, the late pioneer of behavioral economics and author of the bestselling book Thinking, Fast and Slow, who received the award in 2002 for his groundbreaking work on human judgment and decision-making, integrating psychological research into economic science.

"You can study investor bias for a lifetime, and it doesn't make you immune to it," says Andy Reed, head of behavioral economics research for $10 trillion asset manager Vanguard. "People used to ask Kahneman, 'Does studying this stuff make you a better investor?' He would say, 'No! I still make mistakes. I just know I'm making them!'"

As Kahneman's comments make clear, our behavioral tendencies are so deeply entrenched—because of our experiences, our emotions, our ancient caveman history of desperately trying to survive to the next day—that they can be challenging to eradicate, even for the world's foremost experts on the subject.

But it pays—quite literally—to try. That's because these unconscious biases—an ingrained aversion to losses, the innate pull to follow a crowd, a tendency to stick with what's familiar, overconfidence about your skills and many more—can otherwise seriously impede your best efforts to build wealth and ensure your money lasts your lifetime.

Awareness is the first step. Then, once you understand the cognitive quirks that can undermine you, you can take specific, targeted action to counteract them.